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3. Money and Banking

Money plays a crucial role as a medium of exchange, unit of account, and store of value in modern economies. It facilitates transactions by overcoming the limitations of barter systems and can be broadly classified into narrow and broad categories. The banking system, guided by the central bank, is essential for creating and managing money supply through deposits and loans, while various monetary policy tools regulate this supply to ensure economic stability.

Sections

  • 3

    Money And Banking

    This section describes the roles, functions, and mechanisms of money and banking in facilitating economic transactions.

    Learning Practice

  • 3.1

    Functions Of Money

    Money serves as a medium of exchange, a unit of account, and a store of value, facilitating transactions in an economy.

    Learning Practice

  • 3.2

    Demand For Money And Supply Of Money

    This section explores the concepts of money demand and supply, emphasizing their roles in transactions, and explains how various economic factors influence both.

    Learning Practice

  • 3.2.1

    Demand For Money

    The demand for money pertains to the desire of individuals to hold money based on transactional needs and interest rates influencing the amount held.

    Learning Practice

  • 3.2.2

    Supply Of Money

    This section covers the concept of the supply of money in a modern economy, focusing on the roles of the central bank and commercial banks in regulating money supply.

    Learning Practice

  • 3.3

    Money Creation By Banking System

    This section explains how banking systems create money through deposits and loans, highlighting key concepts like the money multiplier and reserve requirements.

    Learning Practice

  • 3.3.1

    Balance Sheet Of A Fictional Bank

    This section explains the balance sheet of a fictional bank, illustrating the assets and liabilities, and how banks create money through lending.

    Learning Practice

  • 3.3.2

    Limits To Credit Creation And Money Multiplier

    This section discusses how banks create credit and the limits imposed by the central bank through the reserve requirement.

    Learning Practice

  • 3.4

    Policy Tools To Control Money Supply

    This section discusses the various tools used by the Reserve Bank of India to control the money supply in the economy.

    Learning Practice

  • 3.5

    The Supply Of Money: Various Measures

    This section discusses the various measures of money supply and its functions in facilitating economic transactions.

    Learning Practice

  • 3.6

    Box No. 3.2: Demonetisation

    Demonetisation in India involved the withdrawal of Rs 500 and Rs 1000 notes in November 2016, aimed at curbing black money and enhancing tax compliance.

    Learning Practice

References

NCERT Study Material

Class Notes

Memorization

What we have learnt

  • Money serves multiple funct...
  • Barter systems face signifi...
  • The central bank and commer...

Final Test

Revision Tests

Chapter FAQs