Scribd Logo
Upload

Welcome to Scribd!

  • 329 views

    Revision Notes For Class 12 Macro Economics Chapter 3 - Free PDF Download

    Uploaded by

    Vibhuti Batra
    The document provides revision notes for Class 12 Macro Economics Chapter 3 – Money and Banking. It discusses key concepts related to money such as definitions of money, functions of money, types of money supply (M1, M2, M3, M4). It also explains barter system and difficulties with it that led to the emergence of money. Other topics covered include commercial banks, central banks, money creation process, repo rate and reverse repo rate. The document aims to help students prepare for exams through these concise revision notes.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Revision Notes For Class 12 Macro Economics Chapter 3 - Free PDF Download

    Uploaded by

    Vibhuti Batra
    329 views7 pages
    The document provides revision notes for Class 12 Macro Economics Chapter 3 – Money and Banking. It discusses key concepts related to money such as definitions of money, functions of money, types of money supply (M1, M2, M3, M4). It also explains barter system and difficulties with it that led to the emergence of money. Other topics covered include commercial banks, central banks, money creation process, repo rate and reverse repo rate. The document aims to help students prepare for exams through these concise revision notes.

    Original Title

    CHAP3

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document provides revision notes for Class 12 Macro Economics Chapter 3 – Money and Banking. It discusses key concepts related to money such as definitions of money, functions of money, types of money supply (M1, M2, M3, M4). It also explains barter system and difficulties with it that led to the emergence of money. Other topics covered include commercial banks, central banks, money creation process, repo rate and reverse repo rate. The document aims to help students prepare for exams through these concise revision notes.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    329 views7 pages

    Revision Notes For Class 12 Macro Economics Chapter 3 - Free PDF Download

    Uploaded by

    Vibhuti Batra
    The document provides revision notes for Class 12 Macro Economics Chapter 3 – Money and Banking. It discusses key concepts related to money such as definitions of money, functions of money, types of money supply (M1, M2, M3, M4). It also explains barter system and difficulties with it that led to the emergence of money. Other topics covered include commercial banks, central banks, money creation process, repo rate and reverse repo rate. The document aims to help students prepare for exams through these concise revision notes.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 7

    Page Contents

    Revision Notes for Class 12 Macro Economics Chapter 3 – Free PDF Download
    CBSE Class 12 economics revision notes chapter 3 Money and Banking Revision Notes
    CLASS 12 Macro ECONOMICS REVISION NOTES
    CBSE CLASS 12 STUDY MATERIALS

    Revision Notes for Class 12 Macro Economics


    Chapter 3 – Free PDF Download
    Free PDF download of Class 12 Macro Economics Chapter 3 – Money and Banking Revision
    Notes & Short Key-notes prepared by our expert Economics teachers from latest edition of
    CBSE(NCERT) books.

    Do you need help with your Homework? Are you preparing for Exams?
    Study without Internet (Offline)

    DOWNLOAD PDF FOR FREE

    CBSE Class 12 economics revision notes


    chapter 3 Money and Banking Revision Notes
    Money: Money may be defined as anything which is generally acceptable as a medium of
    exchange and at the same time acts as a measure, store of value and standard of deferred
    payment.

    Functions of Money:

    1. Primary Functions

    a. Medium of exchange

    CoolGyan.Org | A Portal For Complete Education | 1


    b. Common measure of value or unit of value

    2. Secondary Functions

    a. Standard of deferred payment

    b. Store of value

    c. Transfer of value

    3.Contingent Functions

    a. Basis of credit

    b. Liquidity

    c. Basis of price mechanism

    d. Maximum profit to the producers

    e. Maximum satisfaction to the consumers

    f. Basis of distribution of income

    Barter Exchange: It implies the direct exchange of goods for goods without the use of money.

    Difficulties involved in the Barter Exchange:

    1. Lack of a common measure of value.

    2. Lack of double coincidence of wants

    CoolGyan.Org | A Portal For Complete Education | 2


    3. Lacks of standard of deferred payments.

    4. Lack of store of value.

    5. Lack of divisibility.

    6. Difficulty in exchange of services

    Supply of Money: Total stock of money (currency notes, coins and demand deposit of banks)
    in circulation are held by the public at a given point of time.

    Supply of money does not include cash balance held by central and state govt. and stock of
    money held by banking system of country as they are not in actual circulation of the country.

    Measures of Money Supply = Currency held by Public + Net Demand Deposits held by
    commercial banks

    M1 = C + DD + OD

    C = Currency and coins with the public

    DD = Demand deposits of the public with the banks

    OD = Other deposits

    M2 = M1+ Post office savings deposits

    M3 = M1+ Time deposits of commercial banks

    M4= M3+ Total deposits with the post office saving organisation excluding the deposits on
    NSC

    CoolGyan.Org | A Portal For Complete Education | 3


    Banks:

    Commercial Banks: Commercial Banks are financial institution who accepts deposits from the
    public and provide loans facilities for investment with the aim of earning profit.

    Functions of Commercial Banks

    1. Primary functions:-

    (a) Accepting deposits

    (b) Advancing loans

    (c) Discounting bill of exchange.

    2. Secondary functions:-

    1. Agency function

    (a) Transfer of fund

    (b) Collection of funds

    (c) Purchase and sale of shares and securities on behalf of the customers

    (d) Collection of dividend and interest

    (e) Payment of bills and insurance premium on behalf of customers

    (f) Acting as executor and trustee of will

    (g) Acting as correspondent and representative of customer and provide letter of credit to the

    CoolGyan.Org | A Portal For Complete Education | 4


    customer.

    2. General utility function

    (a) Purchase and sell of foreign exchange.

    (b) Issuance of travelers cheque.

    (c) Safe custody of valuable goods in lockers.

    (d) Underwriting of securities.

    Central Banks: The central Bank is the apex institution of monetary and financial system of a
    country. It makes monetary policy of the country in public interest. It manages, supervises
    and facilitates the banking system of the country.

    Functions of Central Banks

    1. Bank of Issue

    2. Banker to the Government

    3. Banker’s Bank and Supervisor.

    4. Controller of credit.

    5. Lender of last resort

    6. Custodian of foreign exchange reserves

    MONEY CREATION OR CREDIT CREATION BY COMMERCIAL BANKS

    CoolGyan.Org | A Portal For Complete Education | 5


    CREDIT is defined as finance made available by one party to another party on a certain rate
    of exchange.

    The capacity of banks to create money or credit depends on (i) Amount of primary deposits
    and (ii) Legal reserve ratio(LRR).

    Legal Reserve Ratio(LRR):- is fixed by the central bank of a country and it is the minimum
    ratio of deposit legally required to be kept as cash by banks.

    Cash Reserve Ratio(CRR):- It is a part of LRR which is to be kept with the central bank.

    Statutory Liquidity Ratio(SLR):- It is a part of LRR which is to be kept with the bank
    themselves.

    Commercial bank’s demand deposits are a part of money supply. Commercial banks lend
    money to the borrowers by opening demand deposit account in their names. The borrowers
    are free to use this money by writing cheques. According to definition demand deposits are a
    part of money supply. Therefore, by creating additional demand deposits bank create money.
    Money creation depends upon two factor: Primary deposits and Legal Reserve Ratio (LRR).
    Deposit Multiplier = 1/LRR Total Deposit creation = Initial deposit X 1/LRR.

    Repo rate : Repo rate is the rate at which the central bank of a country (Reserve Bank of
    India in case of India) lends money to commercial banks in the event of any shortfall of funds.
    Repo rate is used by monetary authorities to control inflation.

    Description: In the event of inflation, central banks increase repo rate as this acts as a
    disincentive for banks to borrow from the central bank. This ultimately reduces the money
    supply in the economy and thus helps in arresting inflation.

    Reverse repo rate : Reverse repo rate is the rate at which the central bank of a country
    (Reserve Bank of India in case of India) borrows money from commercial banks within the
    country. It is a monetary policy instrument which can be used to control the money supply in

    CoolGyan.Org | A Portal For Complete Education | 6


    the country.

    Description: An increase in the reverse repo rate will decrease the money supply and vice-
    versa, other things remaining constant. An increase in reverse repo rate means that
    commercial banks will get more incentives to park their funds with the RBI, thereby
    decreasing the supply of money in the market.

    CLASS 12 Macro ECONOMICS REVISION NOTES


    Chapter 1 – Introduction to Macro Economics
    Chapter 2 – National Income Accounting
    Chapter 3 – Money and Banking
    Chapter 4 – Determination of Income and Employment
    Chapter 5 – Government Budget and the Economy
    Chapter 6 – Open Economy Macroeconomics
    INDIAN ECONOMICS Development NOTES
    All Subjects
    CBSE CLASS 12 STUDY MATERIALS
    NCERT Solutions for Class 12
    Revision Notes for Class 12
    Important Questions for Class 12
    Formula for Class 12
    Previous Year Question Paper for Class 12
    Sample Paper for Class 12
    Syllabus for Class 12
    NCERT Exemplar Solutions for Class 12
    RD Sharma Class 12 Maths Solutions
    Ask your Doubts
    All Classes

    CoolGyan.Org | A Portal For Complete Education | 7

    You might also like