MONEY AND ITS BASIC CONCEPTS

MONEY AND ITS RELATED CONCEPTS

Ques 1. Define Barter System?
Ans. Barter System:-  A system where goods are exchange with goods. It is also called C-C economy i.e commodity for commodity exchange economy.

Ques 2. Explain the Limitations of Barter System?

Ans. There are many limitations of barter system are as follows:-

A. Store of values: Some goods cannot be stored for longer time because they are perishable in nature and hence barter system did not get successful. eg: fruits and vegetables.

B. Indivisibility of factor: Some of the commodities are indivisible in nature that is why barter system did not get successful. For Eg: Suppose a person has one cow is equal to one quintal of rice but the person have only half quintal of rice so we cannot divide the cow into two cows and exchange it with half quintal of rice hence exchange is not possible here.

C. Lack of standard of deferred payments: In barter system there is lack of standard of deferred payments which means that the payment cannot made in future due to differences in quality of a commodity at different levels of intervals and changes in value of the commodity over that period. For eg: If somebody borrows wheat by promising it to return it in future then its not necessary that he will return it with the same quality he received due to differences in productivity of wheat.  

D. Lack of double coincidence of wants: In Barter system there is first difficulty to find the person who needs a commodity one have and having the commodity what other wants this is also called problem of reciprocal demand thats why barter system did not get successful. For eg:- If you want to exchange television with air conditioner you should get the person who needs your television and he should have air conditioner to complete the process.

E.  Lack of common measure of values: Sometimes different commodities has different values it is very difficult to determine the correct values of a commodity in which it can be exchanged with the other commodity that is why the barter system didn't got successful. The value of the commodity is not predecided, it always depends upon the need of person so we can measure the commodity value always in same terms and one party is always at loss. For eg: In desert if someone needs water desperately as if he could die then he must be agree to give gold in exchange for water as at that time water have more value for that person instead of gold so exchange cannot be possible every time thats why barter system didn't got successful. 

Ques 3. Define money?
Ans. Money:-  Money is anything which is undoubtedly accepted as a medium of exchange, measure of value, storage of value and standard of deferred payments. In the words of Prof. Walker "Money is what Money does".

Ques 4. Explain the functions of money?
Ans. There are mainly two functions of money are as follows
I. Primary functions
1. Medium of exchange: Anything which is undoubtedly accepted as medium of exchange because the money which is using in the market is people basically trust on this money because that money represents Government of India or the Government of other country and it is backed up by gold reserve or foreign exchange reserve.

2. Measure of value: Anything can be measured in terms of money but under barter system we always measure the goods in term of goods which cannot be possible because everything have different qualities and characteristics that is why it becomes easier to measure the value after the introduction of money. But there are different types of unit of account for money like INR, $ etc.

II. Secondary function:-

1. Standard of deferred payments:-  We cannot measure and make future payments due to quality issue or variance between the different commodities at the time of barter system but payment can be made in future with the help of money because there is no quality issues with the money so it can be taken as a standard of deferred payments.

2. Store of value:- Money can be stored for longer time and it is the most liquid form of wealth whereas some commodities cannot be stored for longer time but money can.

3.Transfer of value:- Money is also a means for transferring purchasing power or value from one person to another if any person purchase a commodity from shopkeeper then the value of the commodity can be transferred from the the seller to buyer in terms of satisfaction or money.

Ques 5. Explain the stages in evolution of money?.
Ans. Commodity money: It is used in barter system when we exchange from one commodity with other example bread and butter.

Metallic money : With the gradual progress of the society there comes a money called metallic money in the form of gold and silver.

Token coins: Nowadays token coins are also used as form of money which is made of alloy. For eg: Coins of Rs.1 ,2 , 5, 10 etc.

Paper money: The expansion of trade and commerce industry the demand for metallic money increases which is replaced by paper money therfore the currency is issued in the form of promissory notes today is called paper money.

Plastic Money:  One modern form of money is also used in place of money is debit cards and credit cards to avoid the trouble of carrying cash and more accountability is known as plastic money.

Some other forms are CRYPTOCURRENCY and E-CASH.

Ques 6. Explain the Kinds of money?
Ans: There are many types of money some of them are as follows:-

Fiat money: The money which is issued on the order(fiat) of the government is known as Fiat money. For eg: Promissory note.

Bank money: The money which can be used in place of cash by the depositing the money in bank is known as bank money.For eg: cheque and demand draft etc.

Full Bodied Money:  The money whose extrinsic(monetary) value is equal to intrinsic(commodity) value of the money is known as full bodied money. For eg: Token coins.

Fudiciary Money:  The money which is accepted on the basis of trust that its issuer is having a command over it. For eg:- Cheque.

Near Money:  The money which is near to cash or can be easily converted into cash is known as near money. For eg: Gold etc.

Credit Money:-  The money whose extrinsic value is greater than the intrinsic(commodity) value of the commodity is known as credit money.

Representative Full bodied Money: The money which represent its issuing authority but do not have its own commodity value is known as representative full bodied money and it is backed by gold or foreign exchange reserve upto some extent. For eg: Promissory notes or Paper Money.

Ques 7. Explain the supply of money and its measures?.

Ans . The stock of money which is available in the market for circulation of things is known as supply of money. In other words the availability of cash in the economy is known as supply of money. There are four measures of money supply are as follows:-

M 1= C + DD + OD
Here C is equal to currency with public and DD is equals to demand deposit with the commercial banks and OD is equal to other deposits with the RBI

 M 2=M 1+ saving with the post office

M 3=M 2+term deposit with commercial banks

 M 4=M 3+total deposit with the post office  excluding  National savings certificate.

Ques 8. Define High Powered Money?

Ans. The money which is held by the public in the form of cash and demand deposits with the commercial banks or the money which is issued by the RBI(Central Bank) is known as High Powered Money.

Economy and its Central Problems

Economy and its Central Problems

Related topic video for understanding is on my you tube channel concept mantra. Watch for better understanding.

1.What is an Economic Problem?
Ans. The problem of choice which arises due to scarcity of resources as human being have unlimited wants.

2. What is Economising of Resources?

Ans. Meeting unlimited wants with limited resources or utilising the resources in an efficient manner is known as economising of resources.

3. Explain the central problems in an economy?

Ans. There are three central problems in an economy are as follows:-

1. What to produce:- In this we decide that what should be produced and in what quantity.

Solution:- This problem can be solved by analysing the demand and supply in an economy.

2. How to produce:- In this we decide that which type of technique is to be used to produce in an economy.

There are two types of technique are as follows:-

Capital Intensive Technique:- In this technique we use more units of capital and less units of labour. for eg:- In developed country like USA.

Labour Intensive Technique:- In this technique we use more units of labour and less units of capital.

For eg:- In developing country like INDIA.

Solution:- This problem can be solved by analysing the availability of resources in an economy.

3. For whom to Produce:- In this we decide that for whom we should produce the goods and the distribution of national income in an economy.

Solution:- The problem can be solved by analysing the distribution and composition of national income in an economy.

4. Difference between MicroEconomics and MacroEconomics?
Ans. 

S.NO.	MICROECONOMICS	MACROECONOMICS
1.	The study of economics on the basis of taking up an individual like a firm is known as microeconomics.	The study of economics on the basis of taking up economy as a whole.
2.	It is a theory of Price.	It is a theory of Income and Employment.
3.	It is a narrow concept.	It is wider or broad concept.
4.	It is a partial equilibrium analysis.	It is a general equilibrium analysis.
5.	It is bottom-up view approach.	It is a top-down view approach.
6.	For e.g.: individual demand, individual supply etc.	For e.g. aggregate demand, aggregate supply etc.

Production Possibility Curve

PRODUCTION POSSIBILITY CURVE/TRANSFORMATION CURVE.

Related topic video for understanding is on my you tube channel concept mantra. Watch for better understanding.

4.Define Production Possibility Curve or Production Possibility Frontier or Transformation Curve?

Ans. Production Possibility Curve:- This curve shows possibilities of those different combinations of two or more goods which can be produced with the help of available resources and given technology.

Assumptions:-

1. Only two goods have been taken.

2. Technology is assumed constant.

3. Resources are kept equally efficient.

It can be explained with the help of schedule and diagram:-

Explaination:- In the above diagram good A is shown on x-axis and good Y is shown on y-axis. The points on the PPC shows the resources are being fully and efficiently utilised. The shape of the PPC is concave to origin.

5. Explain the Shift in PPC?

Ans:- There are two types of shift in PPC due to change in production of the goods because of the change in technology or resources in an economy.

Reasons for Rightward Shift:
1:- Improvement in technology.
2:- Increase in resources.
3:- Growth of GDP in an economy.

Reasons for Leftward Shift:
1:- Poor technology.
2:- Decrease in resources.
3:- Degrowth of  GDP in an economy.

6. What does the points related to the PPC shows.
Ans. The different points represent different things in PPC:-
a) Points on the PPC shows full utilisation of resources.
b) Points below the PPC shows underutilisation of resources.
c) Points above the PPC shows overutilisation of resources.

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