Modern economyలో Money – ద్రవ్యం అత్యంత ముఖ్యమైన economic institution. Production, consumption, exchange, saving, investment, credit మరియు banking activities అన్నింటిలో money కీలక పాత్ర పోషిస్తుంది.
Money is anything that is generally accepted as a means of payment and medium of exchange and performs the standard functions of money.
Goods and services కొనుగోలు చేయడానికి, debts చెల్లించడానికి, pricesను measure చేయడానికి మరియు purchasing powerను futureకు transfer చేయడానికి సాధారణంగా అంగీకరించబడే సాధనాన్ని Money అంటారు.
General Acceptability
Money ≠ Wealth.
Land, house, machinery, shares మొదలైనవి wealthలో భాగం కావచ్చు. కానీ అవన్నీ సాధారణంగా direct medium of exchangeగా ఉపయోగించబడవు.
Money ఒక్కసారిగా ప్రస్తుత రూపంలో ఏర్పడలేదు. Exchange system అభివృద్ధితో money forms కూడా మారాయి.
Money ఉపయోగించకుండా ఒక commodityని మరొక commodityతో directly exchange చేసే systemను Barter System అంటారు.
Rice ↔ Wheat
Milk ↔ Vegetables
Exchange జరగాలంటే A వద్ద B కోరుకునే commodity ఉండాలి మరియు B వద్ద A కోరుకునే commodity ఉండాలి.
Different commodities valuesను ఒక common unitలో express చేయడం కష్టం.
Future payments or debtsను ఏ commodityలో repay చేయాలో నిర్ణయించడం కష్టం.
Some commodities are perishable or costly to store.
Some goods cannot conveniently be divided into smaller units without losing substantial value.
D → Double Coincidence
M → Measure of Value
D → Deferred Payments
S → Store of Value
I → Indivisibility
Intrinsic/use value ఉన్న commoditiesను medium of exchangeగా ఉపయోగించిన వ్యవస్థను Commodity Money అంటారు.
✓ Cattle
✓ Grain
✓ Salt
✓ Other widely accepted commodities
Gold, silver, copper వంటి metalsను coins రూపంలో moneyగా ఉపయోగించడం Metallic Money.
Paper currency issued under monetary authority and accepted as money is called Paper Money.
Modern paper currency generally derives its monetary acceptability from law, public confidence and the monetary system rather than from the intrinsic commodity value of the paper itself.
Bank deposits that can be used to make payments form an important part of modern money.
✓ Cheques
✓ Debit instructions
✓ Electronic bank transfers
✓ Other deposit-based payment mechanisms
A cheque itself is primarily an instrument/order for payment; the bank deposit against which payment is made is the monetary asset.
Functions of moneyను examinationలో usually Primary, Secondary and Contingent/Other Functionsగా classify చేస్తారు.
Money buyers and sellers మధ్య intermediaryగా పనిచేస్తుంది.
Goods → Goods
Money Economy:
Goods → Money → Goods
Goods and services valuesను common monetary unitలో express చేయడానికి money ఉపయోగపడుతుంది.
Book = ₹500
Mobile = ₹20,000
Laptop = ₹60,000
Money therefore provides a common unit for comparing economic values.
Money current purchasing powerలో కొంత భాగాన్ని future use కోసం hold చేయడానికి అవకాశం ఇస్తుంది.
Future debts, loans and contractual paymentsను monetary unitsలో specify చేయవచ్చు.
Money purchasing powerను one person/place/account నుంచి anotherకు transfer చేయడాన్ని సులభతరం చేస్తుంది.
✓ Distribution of factor incomes
✓ Credit transactions
✓ Capital formation
✓ Accounting and economic calculation
✓ Transfer of purchasing power
✓ Market exchange and specialisation
| Function | Meaning |
|---|---|
| Medium of Exchange | Used for buying and selling |
| Unit / Measure of Value | Expresses prices in a common unit |
| Store of Value | Transfers purchasing power over time |
| Standard of Deferred Payment | Future obligations expressed in money |
| Transfer of Value | Moves purchasing power across persons/places |
A good monetary medium ideally possesses several practical qualities.
✓ Durability
✓ Portability
✓ Divisibility
✓ Recognisability
✓ Relative uniformity
✓ Convenient handling
✓ Reasonable stability of purchasing power
Competitive examinationsలో moneyకు సంబంధించిన terminologyపై direct questions frequently appear.
Law ద్వారా paymentsలో valid monetary tenderగా recognised చేయబడే moneyను Legal Tender Money అంటారు.
Government/monetary authority decree and monetary institutions ద్వారా moneyగా accepted అయ్యే currencyను Fiat Money అంటారు. Its face value need not depend on the commodity value of the material from which it is made.
Traditional textbook usageలో confidence or trustపై acceptance ఆధారపడే money or monetary claimsను Fiduciary Moneyగా describe చేస్తారు.
A coin's face value and commodity/metal value are broadly equal under the traditional definition అయితే దాన్ని Full-Bodied Money అంటారు.
Face value, material/intrinsic valueకంటే ఎక్కువగా ఉండే coin/currency formను traditional classificationలో Token Money అంటారు.
| Full-Bodied Money | Token Money |
|---|---|
| Face value broadly equals intrinsic value | Face value exceeds intrinsic/material value |
| Historically associated with commodity/metallic standards | Common in modern coinage systems |
Moneyలా highly liquidగా ఉన్నప్పటికీ directly and universally medium of exchangeగా ఉపయోగించలేని financial assetsను broadly Near Money అంటారు.
✓ Time deposits
✓ Treasury bills
✓ Certain short-term highly liquid financial assets
Near Money ≠ Money in the strict transactions sense.
It is highly liquid and readily convertible into money.
| Money | Near Money |
|---|---|
| Directly usable for payments in its monetary form | Usually must be converted/redeemed before general payment use |
| Highest transaction liquidity | High but generally lower transaction liquidity |
| Currency and transaction deposits are key examples | Time deposits and similar liquid assets are common examples |
High-Powered Moneyను Monetary Base లేదా Reserve Money అని కూడా అంటారు.
Broadly, it consists of currency and banking-system reserves with the central bank, subject to the precise statistical definition used.
Because the monetary base supports the broader deposit and credit creation process of the banking system.
Monetary base మరియు broader money supply మధ్య relationshipను Money Multiplier concept ద్వారా study చేస్తారు.
Investment Multiplier → Investment/Expenditure and Income
Money Multiplier → Monetary Base and Money Supply
People తమ wealthలో ఎంత భాగాన్ని money balancesగా hold చేయాలనుకుంటారో దాన్ని Demand for Money అంటారు.
Previous topicలో Keynesian motivesను చూశాం:
2. Precautionary Motive
3. Speculative Motive
Unexpected needs and emergencies కోసం money balances hold చేయడం.
Money యొక్క value అంటే broadly దాని purchasing power — ఒక unit of moneyతో ఎంత goods and services కొనగలమో.
General Price Level ↑ → Purchasing Power of Money ↓
General Price Level ↓ → Purchasing Power of Money ↑
Prices ↑ → Money Value ↓
Prices ↓ → Money Value ↑
Liquidity means how easily an asset can be used for payments or converted into spendable money with little delay and value loss.
Currency / transaction balances
↓
Highly liquid short-term deposits/assets
↓
Longer-term financial assets
↓
Less-liquid physical assets
| Money | Wealth |
|---|---|
| Highly liquid monetary asset | Broader stock of valuable assets/net worth |
| Used as medium of exchange | Not all wealth is directly spendable |
| Part of wealth | Can include money, property, financial and other assets |
| Money | Income |
|---|---|
| Asset / stock at a point in time | Flow over a period |
| Measured at a point in time | Measured per week/month/year etc. |
| Can be held | Earned/received during a period |
Money → Stock
Income → Flow
Money and credit are closely related but not identical.
| Money | Credit |
|---|---|
| Means of payment / monetary asset | Claim involving borrowing and repayment |
| Can settle transactions | Creates debtor-creditor relationship |
| May exist without a particular debt contract | Necessarily involves a financial claim/liability |
✓ Exchange
✓ Specialisation
✓ Price comparison
✓ Saving
✓ Investment
✓ Credit
✓ Accounting
✓ Production planning
✓ Distribution of income
✓ Domestic and international trade
2. Money ≠ Income
3. Cheque ≠ Currency
4. Near Money ≠ Direct transaction money
5. Money Multiplier ≠ Investment Multiplier
6. Higher Price Level → Lower Purchasing Power of Money
7. Legal tender and payment instrument are not identical concepts
A) General acceptability
B) Large size
C) High weight
D) Scarcity alone
A) Banking
B) Barter
C) Credit creation
D) Investment
A) Double coincidence of wants
B) Excess money supply
C) Inflation targeting
D) Bank rate
A) Double coincidence of wants
B) Production entirely
C) Scarcity entirely
D) Opportunity cost entirely
A) Medium of exchange
B) Production of goods
C) Collection of taxes only
D) Population control
A) Unit/measure of value
B) Production
C) Taxation
D) Investment multiplier
A) Store of value
B) Medium of production
C) Barter
D) Credit creation
A) Standard of deferred payments
B) Barter
C) Production function
D) Investment function
A) Value / purchasing power
B) Rainfall
C) Population
D) Natural resources physically
A) Commodity/use value
B) No value of any kind
C) Only electronic form
D) No acceptability
A) Cattle
B) Credit card limit
C) Stock index
D) GDP
A) Metallic money
B) Barter only
C) Income
D) Credit multiplier
A) Monetary/legal authority and public acceptance
B) Intrinsic value alone
C) Weight alone
D) Gold content necessarily
A) Trust/confidence
B) Population
C) Labour
D) Land
A) Law
B) Weather
C) Population
D) Production function
A) Full-bodied money
B) Near money
C) Token money
D) Credit only
A) Token money
B) Full-bodied money
C) Barter
D) Income
A) Highly liquid asset readily convertible into money
B) Barter commodity only
C) Illegal money
D) Income tax
A) Time deposit
B) Ordinary consumption good
C) Labour service
D) Land rent
A) Monetary base
B) National income
C) Fiscal deficit
D) Profit
A) Reserve money
B) Disposable income
C) Real GDP
D) Net profit
A) Currency and bank reserves
B) Land and labour
C) Consumption and saving
D) Exports and imports only
A) Money supply and monetary base
B) Investment and income
C) Price and demand
D) Profit and cost only
A) Autonomous expenditure/investment change and income change
B) Monetary base and deposits
C) Currency and gold
D) Prices and wages only
A) Desired holding of money balances
B) Desire to become rich
C) Demand for all wealth
D) Demand for production only
A) Transactions, Precautionary, Speculative
B) Production, Consumption, Export
C) Rent, Wage, Profit
D) Saving, Tax, Import
A) Income
B) Depreciation only
C) Unemployment only
D) Tax rate only
A) Inverse relationship with interest rate
B) Direct relationship with interest rate
C) No relationship
D) Fixed equality with income
A) Purchasing power
B) Weight of note
C) Colour of currency
D) Printing cost
A) Inverse relationship
B) Direct relationship
C) No relationship
D) Equal numerical values
A) Double
B) Half
C) Four times
D) Unchanged
A) 125%
B) 100%
C) 80%
D) 25%
100 / 125 × 100 = 80%
A) 2
B) 4
C) 5
D) 10
2,000 / 500 = 4
A) ₹80 crore
B) ₹400 crore
C) ₹2,000 crore
D) ₹5,000 crore
A) Rises
B) Falls
C) Always remains unchanged
D) Becomes infinite
A) Money balance
B) Annual income
C) Annual consumption expenditure
D) Investment per year
A) Money stock at a date
B) Income per year
C) Wealth at a date
D) Bank balance at a date
A) Wealth
B) Money
C) Currency alone
D) Coins alone
A) Part of wealth
B) Identical to all wealth
C) Identical to annual income
D) Identical to capital goods
A) Ease of using/converting an asset into spendable money
B) Profitability only
C) Taxability
D) Physical weight
A) Every form of wealth is money
B) Money is part of wealth
C) Income and money are identical
D) All assets are legal tender
A) Currency note
B) Payment instrument/order
C) Commodity money
D) Metallic money
A) Medium of exchange
B) Store of value
C) Unit of account
D) Elimination of scarcity
A) Medium of exchange
B) Store of value
C) Standard of deferred payment
D) Unit of population
A) Store of value
B) Physical portability
C) Divisibility
D) Recognisability
A) Assertion and Reason are true; Reason correctly explains Assertion.
B) Both are true; Reason is not the correct explanation.
C) Assertion is true; Reason is false.
D) Assertion is false; Reason is true.
Reason: It removes the need for double coincidence of wants.
Reason: Wealth can include assets that are not generally accepted as a medium of exchange.
Reason: The value of money is inversely related to the general price level.
Reason: It can generally be converted into money relatively easily.
Reason: A money balance can be measured at a point of time.
A) Unit of account
B) Store of value only
C) Barter
D) Credit creation
A) Standard of deferred payments
B) Barter
C) Production
D) Investment
A) Divisibility
B) Durability
C) Portability
D) Scarcity
A) Portability
B) Divisibility
C) Stability
D) Scarcity
A) Durability
B) Portability
C) Divisibility
D) Elasticity
A) High-powered money
B) Near money only
C) Income
D) Investment
A) Trust
B) Production
C) Labour
D) Inflation
A) Money
B) Land
C) Building
D) Machinery
A) Falls
B) Rises
C) Remains constant by definition
D) Becomes infinite
A) Barter → Commodity → Metallic → Paper → Bank/Deposit Money
B) Paper → Barter → Metallic → Commodity
C) Bank Money → Barter → Commodity
D) Metallic → Barter → Commodity → Paper
| Concept | Remember |
|---|---|
| Money | Generally accepted means of payment / medium of exchange |
| Barter | Goods exchanged directly for goods |
| Main Barter Problem | Double Coincidence of Wants |
| Primary Functions | Medium of Exchange + Unit of Account |
| Store of Value | Purchasing power transferred over time |
| Deferred Payment | Future obligations expressed in money |
| Fiat Money | Authority/decree-based monetary acceptance |
| Fiduciary | Trust/confidence |
| Near Money | Highly liquid, readily convertible assets |
| High-Powered Money | Monetary Base / Reserve Money |
| Money | Stock |
| Income | Flow |
| Value of Money | Purchasing Power |
| Price Level ↑ | Money Value ↓ |
| Transactions Demand | Positively related to income |
| Speculative Demand | Inversely related to interest rate |
Barter → Goods for Goods
Main Barter Problem → Double Coincidence of Wants
Primary Functions → Medium of Exchange + Measure/Unit of Value
Secondary Functions → Store of Value + Deferred Payments + Transfer of Value
Commodity Money → Commodity/use value
Metallic Money → Metal coins
Fiat Money → Authority / Decree
Fiduciary Money → Trust
Full-Bodied Money → Face Value ≈ Intrinsic Value
Token Money → Face Value > Intrinsic Value
Near Money → Highly liquid, readily convertible assets
High-Powered Money → Monetary Base / Reserve Money
Money Multiplier → Money Supply / Monetary Base
Money → Stock
Income → Flow
Value of Money → Purchasing Power
Price Level ↑ → Purchasing Power ↓
Price Level ↓ → Purchasing Power ↑
Money → Barter → Evolution of Money → Functions of Money → Commodity & Metallic Money → Legal Tender → Fiat & Fiduciary Money → Full-Bodied & Token Money → Near Money → High-Powered Money → Demand for Money → Value of Money → Liquidity
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