0Money and Banking
Class XII Macro Economics
Topic A
- Barter Exchange: Exchange of ‘goods for goods’ is called barter exchange. Example: If person A sells wheat to person B in exchange for rice, there is only an exchange of goods for goods known as the Barter Exchange.
- Definition of Money. Anything that is generally accepted as a medium of exchange and at the same time act as a measure of value & store of value.
Meaning of Money Supply: Total money in circulation in an economy at a particular point in time. (1m)
- It includes money of public only
- It excludes money of Govt. and Central Bank
- It is a stock concept
Components of money supply ( 3m)
Currency held by the public
- Currency notes are issued by the Reserve Bank of India (RBI), the monetary authority in India.
- One rupee notes and coins are issued by the ministry of finance, Govt. of India.
- Currency notes & coins are called fiat money.
- Currency notes & coins are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any Economic Transaction.
(Net) Demand Deposits by Commercial Banks
- Demand deposits can be withdrawn from Banks on demand by writing cheques or ATM / Debit card example, current account deposits and saving account deposits.
- Only deposits of the public held by commercial banks are included in the money supply.
- Inter-Bank Deposits (deposits that a commercial bank holds in other commercial banks) are not included in the money supply.
Demand Deposits: Deposits made in a commercial Bank can be withdrawn at any point of time by cheque/ATM/Debit card. They carry very less or no rate of interest: Example Saving Bank Account or Current Account.
Time Deposits: Deposits made in a commercial bank can be withdrawn only after a certain period. They carry a high rate of interest which varies with the period. Cheque/ATM/ Debit Card cannot withdraw them.
