Money

Meaning, Function and forms of money, Concept and Calculation of index numbers, Concept of value of money. Quantity Theory of Money. Concept of Inflation and Deflation

Notes

Concept, Function and Role of Money

The system in which the goods and commodities are exchanged in terms of other goods and commodities in which double coincidence of wants are required. In a barter system, if a good or service is to be bought or sold, then it is to be exchanged with other good or service. For example: If Sita wants some utensils, then she must find who have them and that person should be willing to trade the utensils for something Sita has. Such types of exchange were very difficult. To overcome the difficulties, monetary system was introduced and is in practice till date. In this system, goods and services are exchanged in terms of money. For example: If Sita needs utensils again, she will simply go to the owner and exchange the utensils in terms of money. In this system, the double coincidence of wants is not necessary. It is commonly used in almost each and every part of the world. It is much easier than the barter system. Before the introduction of money, the exchange was carried out on the basis of exchange of goods and services directly. This system is known as a barter system.

Index Number and Fisher's Quantity Theory of Money

An index number is a statistical tool which is used to measure the value of the money between two different years – the base year and the current year. It is a number which indicates the price level at any given time period compared with some standard year. Several steps are used while calculating the index number which includes: -Identifying the purpose -Selection of the base year -Selection of commodities -Collection of price -Use of formula and getting the change in price level

Characteristics of Money and Inflation & Deflation

In simple terms, money refers to the currency that consists of notes and coins. However, in economics, money is taken in a broader sense.There are several characteristics of money. They are briefly described below: -General Acceptability -Durability -Recognisability -Homogeneity -Portability -Divisibility -Stability Inflation:Inflation is defined as the sustained or continuous rise in the general price level of the goods and services in the economy. It is the rapid increase in the general price level, that causes decline in the purchasing power of money. Inflation is statistically measured in terms of percentage increase in the price index per unit of time. Causes Of Inflation: -Demand-pull inflation -Cost-push inflation Deflation:Deflation is defined as the sustained or continuous fall in the general price level of the goods and services in the economy. When the price decreases, the value of money or the purchasing power of money increases, and it causes deflation.