AP Inter 1st Year Economics Notes Chapter 9 Money, Banking and Inflation

Students can go through AP Inter 1st Year Economics Notes 9th Lesson Money, Banking and Inflation will help students in revising the entire concepts quickly.

AP Inter 1st Year Economics Notes 9th Lesson Money, Banking and Inflation

→ Money is anything which is widely accepted payment for goods or in discharge at other kind of business obligation. Money came into existence to eliminate the problems lies in’the barter system.

→ Functions of money broadly Classified in two types.

  1. Primary functions
  2. Secondary functions

→ At present there are two types of money. They are

  1. Currency
  2. Demand deposits

→ Money supply includes all money in the economy. In India money supply is measured in terms of the following monetary aggregates.
M1 = Currency + demand deposits + other deposists
M2 = M1 + time liability of saving deposits + Certificates of Deposits in issued by banks + term deposits.
M3 = M2 + term deposits over one year maturity + term borrowings of banks.

AP Inter 1st Year Economics Notes Chapter 9 Money, Banking and Inflation

→ Banking means the accepting for the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise with drawble by cheque draft or otherwise.

→ The functions of commercial banks can be divided into two types.

  1. Primary functions
  2. Secondary functions

→ Central bank is .the apex of the banking system in a country. It controls and regulate the activities of the banks and the country’s banking stem. Reserve Bank of India is the central bank of India.

→ Functions of central bank – note issue, Bankers to the government, Banker to bank, lender of Idst resort, controller of credit and custodian of foreign exchange reserve.

→ Inflation means to a persistant upward movement in the general price level rather than once for rise in it.

→ Depending on the cause, inflation may be in two types.

  1. Demand – Pull inflaction
  2. cost – Push inflation.

→ Moderate or Creping inflation has favourable effect on production when there is hyper it creates business uncertainty and adversely affects production. Fixed income groups lose from inflation. Working class also suffer worst because wages do not rise as much as the prices of commodities.

→ Money plays a significant role in the modem economic life of the human beings.

→ Money does not mean currency notes and coins alone. St includes demand deposits of the commercial banks and other deposits held by the Central Bank.

→ According to Seligman’s definition, “Money is one that possesses general acceptability”.

→ Money has many important functions to perform.

→ Money supply is a stock concept. Money supply determines the rate of interest and credit availability, investment, the levels of output, national income and employment.

→ Money is classified on the basis of its value, the material used and its legal status. Thus, there are different types of money.

→ Liquidity is the ability of an asset to be converted into money (cash).

→ Currency is the form in which money is circulated in the economy. It includes coins and paper notes.

→ Near-money refers to those highly liquid assets which are not accepted as money, but which can be quickly converted into money. E.g: Savings deposits, shares.

→ Money that must be accepted by everyone as per law towards payments for commodities and services and settlement of debt is called legal tender money.

→ Token money is the money or unit of currency whose face value is higher than its intrinsic value and which is not convertible into gold or silver on par with its face value.

→ Credit money which is also called the bank money is created by the commercial banks from ^ out of the primary deposits.

→ Store of value is a secondary function of money. By this function money preserves the value of perishable commodities in the form of money if they are exchanged before they perish. It stores the value of durable commodities also.

→ Current account is the kind of deposit accepted by the commercial banks which allows any number of deposits and withdrawals and which facilitate transfer money through cheques by the businessmen, industrialists and government offices, it does not earn any interest.

→ Cash credit is a type of loan given by the commercial bank which facilitates withdrawal of loan amount in installments as and when necessary.

→ It is a deposit directly received by the commercial banks from the public. It is not created by a loan.

→ Secondary deposit or derived deposit is the deposit created by sanctioning a loan from out of the initial deposit or primary deposit.

→ Bills of exchange is a written document written by a buyer in favour of the seller promising to pay the price – amount on a specified future date.

→ This is a facility extended to the current account holders in a commercial bank, by which the account holder can draw an amount above the available balance, subject to an upper limit.

→ Call loan or direct loan is a type of loan given by the commercial banks. It is repayable on demand without any notice.

→ Persistent rise in the general price level over a period is called inflation.

→ Inflation caused by excess aggregate demand over the aggregate supply is called demand pull inflation.

→ The rise in the general price level caused by the increase in the production cost of a firm is called cost-push inflation.

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