CBSE Class 12 Macroeconomics Notes Chapter 5 Money

Chapter 5 Money 

Money: Anything which is generally acceptable by the people in the exchange of goods and services or the repayments of debts is called as money.

Forms Of Money 

1. Fiat Money
Meaning: It refers to that money which is issued by order/ authority of the government. It includes all notes and coins which the people in a country are legally bound to accept as a medium of exchange.
2. Fiduciary Money
Meaning: It is that Money Which is accepted as a medium of exchange between the payer and the payee.

Barter system

Meaning: Barter system can work only when both buyer and seller are ready to exchange each other's goods. for example: A can exchange goods with B only when A has what  B want  and B has what A wants. such double coincidence is very rare.

Problems OR Limitations of Barter system

1. Lack of double co-incidence of wants: Under the barter system, simultaneous fulfillment of wants  was not mandatory which means if a person A wants wheat from C  then it is not necessary that MR c would want to buy Mr's A rice. Because of this problem exchange could not take place in the economy.
2. lack of measures of value:Under Barter system, it was difficult to measure the value of one goods against another good as they were in different denominators for example: meter, liter etc.
3. Lack of store of value: As some goods are of perishable nature so it was difficult to store these goods for longer duration of time & to shift the purchasing power for future.
4. Lack of standards of deferred payments:  Under Barter system i was difficult to enter into contracts and obligations.
5. Lack of divisibility: Under barter system it was difficult to divide the goods as per convenience for example: One shoe against two pieces of bread.

Money supply

Meaning: It refers to the total stock of money held by general public in different forms in a country at a given point of time.

Measures of Money supply

M1 = C + DD + OD


C: refers to the currency and coins held by general public. Currency money is also termed as 'Fiat Money'
DD : refers to the demand deposits held by Banks.
OD:  refers to  other deposits held by RBI.