Class 12 Economics — Chapter 3: Money and Banking

What you'll learn

• ▸Barter System and the Need for Money
• ▸Functions of Money
• ▸Demand for Money
• ▸Supply of Money
• ▸The Central Bank and its Functions
• ▸Commercial Banks and their Role
• ▸Money Creation by the Banking System

Chapter Summary

--- PAGE 1 --- 12105CH03 Money and Banking Money is the commonly accepted medium of exchange. In an economy which consists of only one individual there cannot be any exchange of commodities and hence there is no role for money. Even if there is more than one individual but these individuals do not take part in market transactions, example: family living on an isolated island, money has no function for them. However, as soon as there is more than one economic agent who engage themselves in transactions through the market, money becomes an important instrument for facilitating these exchanges. Economic exchanges without the mediation of money are referred to as barter exchanges. However, they presume the rather improbable double coincidence of wants. Consider, for example, an individual who has a surplus of rice which she wishes to exchange for clothing. If she is not lucky enough she may not be able to find another person who has the diametrically opposite demand for rice with a surpl…

Practice Questions from this Chapter

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1. Explain how barter systems worked. Get Solution →
2. Describe a cashless society. Get Solution →
3. List the central bank's main jobs. Get Solution →
4. What are economic exchanges conducted without the mediation of money called? Get Solution →
5. What is the primary and foremost role of money as described in the chapter? Get Solution →
6. What is the name of India's central bank? Get Solution →
7. The problem in barter where one person may not have what the other wants is known as the...? Get Solution →
8. In a bank's financial operations, what is the term for the difference between the interest rate charged to borrowers and the rate paid to depositors? Get Solution →

Did you know?

• 💡 Ancient people used cowrie shells as money for thousands of years.
• 💡 Roman soldiers were paid with salt, giving us the word 'salary'.
• 💡 The world's first paper money was invented in China over a thousand years ago.
• 💡 The first universal credit card was introduced in 1950 by Diners Club.
• 💡 Goldsmiths were early bankers, storing wealth and issuing receipts for gold.

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