Class 12 Economics – Chapter: Money (CBSE/Sandeep Garg)

Thirty Question-and-Answer flashcards covering definitions, functions, money supply measures, legal concepts, and credit creation from Class 12 CBSE Economics (Sandeep Garg) chapter on Money.

What is the most concise definition of money in economics?

Anything generally accepted as a medium of exchange, measure of value, store of value, and standard of deferred payment.

Which exchange system existed before money and is also called a C-C economy?

The barter system, where goods are exchanged directly for goods.

Which key limitation of barter requires each trader to want exactly what the other offers?

Lack of double coincidence of wants.

Why is the barter system said to lack a common measure of value?

Because it has no standard unit to compare the worth of different goods and services.

Name the barter limitation that makes saving wealth difficult over time.

Difficulty in storing wealth (many goods are perishable or bulky).

Which limitation of barter is highlighted when a cow cannot be split to buy a small item?

Indivisibility of goods.

Why are deferred payments difficult under barter?

Because there is no guarantee that future goods will retain value or be mutually desired.

List the two primary functions of money.

Medium of exchange and measure of value.

How does money act as a medium of exchange?

It is used to buy and sell goods and services, eliminating the need for double coincidence of wants.

What does ‘measure of value’ mean in the context of money?

Money provides a common unit that expresses the prices of all goods and services.

State the two secondary functions of money.

Store of value and standard of deferred payments.

How does money perform the ‘store of value’ function?

People can save money and use it later without major loss of value.

Explain ‘standard of deferred payments’.

Money allows debts or obligations to be stated and settled in the future.

Define money supply in macroeconomics.

The total stock of money available with the public at a particular point of time.

What is included in M1 (narrow money) in India?

Currency held by the public, demand deposits with banks, and other deposits with the RBI.

How is M2 calculated?

M1 plus savings deposits with Post Office Savings Banks.

Which measure of money supply is known as ‘broad money’ and most used in India?

M3, which equals M1 plus time deposits with banks.

What additional component turns M3 into M4?

Adding total deposits with post offices (excluding National Savings Certificates).

What is meant by High-Powered Money (H) or base money?

Currency with the public plus cash reserves of commercial banks held with the RBI.

Write the formula for High-Powered Money.

H = Currency in circulation + Cash reserves of commercial banks.

What is legal tender money?

Money that, by law, must be accepted in payment of debts.

Define fiat money.

Money that has no intrinsic value but is given value by government decree or law.

Why do commercial banks not lend out all the deposits they receive?

They keep a fraction as the Cash Reserve Ratio (CRR) and lend the remainder.

State the formula for total money created through credit creation.

Total Money Creation = Initial Deposit × 1 / CRR.

Who is the sole authority for issuing currency notes in India?

The Reserve Bank of India (RBI).

Which system does RBI follow for issuing currency notes?

The Minimum Reserve System, holding at least ₹200 crore (₹115 crore in gold and the rest in foreign securities).

Give two examples of digital forms of money.

UPI transactions and e-wallet balances (others include net banking, credit cards, etc.).

Why is M1 considered more liquid than M3?

Because it consists mainly of currency and demand deposits that can be used immediately for payments.

What does CRR stand for, and where are these reserves kept?

Cash Reserve Ratio; reserves are held by commercial banks with the RBI.

Summarize the relationship between money, barter, and economic transactions.

Money evolved to overcome barter’s limitations by providing a universally accepted medium that simplifies exchange, valuation, saving, and credit.