Money: Definition And Functions

Money is a crucial element in the economy, serving as a medium of exchange, store of value, unit of account, and a standard for deferred payments.

Definition Of Money

Money is a widely accepted medium of exchange that serves crucial functions in an economy.

Functions Of Money

Money serves four primary functions in an economy: as a medium of exchange, a unit of account, a store of value, and a standard for deferred payments.

Types Of Money

This section discusses the various types of money, including commodity money, fiat money, and bank money, along with their definitions and significance.

Supply Of Money

The supply of money in an economy refers to the total amount of money available at any given time, significantly impacting inflation, interest rates, and economic stability.

Components Of Money Supply

This section discusses the components of the money supply, explaining the different measures of money available within an economy.

Factors Affecting The Money Supply

This section explores the various factors that influence the money supply within an economy, emphasizing the roles played by central bank policies, public demand, and commercial bank lending activities.

Banking System

This section covers the essential functions and structures of the banking system, examining the roles of central and commercial banks in managing money supply and facilitating economic transactions.

Central Bank

The central bank is the primary financial institution responsible for regulating a country's monetary policy and maintaining financial stability.

Commercial Banks

Commercial banks are financial institutions that accept deposits, provide loans, and facilitate money creation in the economy.

Other Types Of Banks

This section discusses various types of banks beyond central and commercial banks, highlighting their roles and functions in an economy.

Credit Creation By Banks

This section explains how commercial banks create credit by lending a portion of deposits, influencing the overall money supply in the economy.

The Process Of Credit Creation

In this section, we explore the process by which commercial banks create credit through their lending activities, highlighting the reserve requirements and the impact on the overall money supply.

Monetary Policy

Monetary policy involves the central bank's actions to control the money supply and interest rates to ensure economic stability.

Conclusion And Summary

This section emphasizes the importance of money and the banking system in facilitating economic transactions and ensuring economic stability.

Key Takeaways

This section summarizes the importance of money and banking in economic transactions, including the roles of central and commercial banks in regulating the money supply.

Summary Of The Chapter

The chapter summarises the essential role of money and banking in the economy, covering definitions, functions, types, and the impact of banking systems on economic growth.