2.

Evaluate the (four/five) principal functions of money in the

contemporary economy.
Money serves several important functions in the contemporary economy.
Here are the principal functions of money:

1. Medium of exchange: Money serves as a medium of exchange,

meaning that it is widely accepted as a means of payment for goods
and services. This facilitates transactions and eliminates the need for
barter.

2. Unit of account: Money is used as a unit of account to measure the

value of goods and services. It provides a common measure of value
that allows us to compare the relative worth of different goods and
services.

3. Store of value: Money is a store of value, meaning that it can be

saved and used at a later time. This allows individuals and businesses
to accumulate wealth and plan for the future.

4. Standard of deferred payment: Money serves as a standard of

deferred payment, meaning that it can be used to settle debts and
obligations that are incurred today but will be paid in the future. This
helps to facilitate credit transactions and borrowing.

5. Means of exchange in international trade: Money is also used as a

means of exchange in international trade, allowing countries to buy
and sell goods and services with one another. This is facilitated by the
use of international currencies, such as the US dollar, euro, and
Japanese yen.

Overall, the principal functions of money play a crucial role in facilitating

economic transactions and supporting the functioning of the contemporary
economy.
Regener
4.Evaluate the credit creation function of banks and its impact on the
economy in general.

What Is Credit Creation?

Credit creation refers to expanding the availability of money through
the advancement of loans and credit by banks and financial
institutions. These institutions use their demand deposits to provide
loans to their customers, giving borrowers higher purchasing power
and competitive interest rates.

In the process of credit creation, banks keep some share of their

deposits as minimum reserves to meet the demand of their
depositors. Thus, banks lend out the excess
reserves for loans and investment purposes, and the interest
earned becomes income for the banks. Therefore, the factors that
drive the credit creation process are liquidity and profitability of
the banks.
The credit creation function of banks has a significant impact on the
economy. By providing funds to borrowers, banks enable individuals and
businesses to make investments and purchases that they might not have
been able to otherwise. This increased economic activity can lead to job
creation, increased productivity, and higher economic growth.

However, the credit creation function of banks can also have negative
effects on the economy. When banks issue too many loans, they can create
an excess supply of money, which can lead to inflation. Additionally, if
borrowers are unable to repay their loans, banks can experience financial
difficulties, which can in turn harm the broader economy.

Overall, the credit creation function of banks is a critical component of the

economy. While it has the potential to drive economic growth, it must be
managed carefully to avoid the negative consequences of excessive
lending. This is why governments and central banks often monitor and
regulate the activities of banks to ensure that credit creation is conducted
in a responsible manner.

5.Create a compact overview of the definition of money supply in India (as per
RBI) with reference to the two principal theoretic approaches to the definition
The Reserve Bank of India (RBI) defines money supply as the total amount
of monetary assets held by the public in the economy at a given point in
time. There are two principal theoretical approaches to the definition of
money supply:

1. Narrow or Reserve Money: This is the most basic and narrowest

measure of money supply, also known as M0. It includes currency in
circulation and the deposits of commercial banks with the RBI.
Reserve money is the basis for the expansion of the money supply in
the economy.
2. Broad Money: This is a wider measure of money supply and is also
known as M3. It includes all the components of M0, as well as
demand and time deposits with commercial banks, and other
deposits such as post office deposits, public provident fund (PPF)
deposits, and deposits with non-banking financial companies
(NBFCs). Broad money includes both currency and bank deposits that
can be easily converted into currency.
In India, the RBI uses the concept of 'monetary aggregates' to measure the
money supply in the economy. The four monetary aggregates defined by
the RBI are:

1. M1: This includes currency notes and coins in circulation, demand

deposits with commercial banks, and other deposits with the RBI.
2. M2: This includes all components of M1, along with time deposits
with commercial banks.
3. M3: This includes all components of M1 and M2, along with deposits
with post offices, NBFCs, and other financial institutions.
4. M4: This includes all components of M3, along with the total deposits
held under the Cash Reserve Ratio (CRR) and the Statutory Liquidity
Ratio (SLR) requirements of commercial banks.

Overall, the money supply in India is measured through a combination of

narrow and broad measures of money, which are used to create monetary
aggregates that reflect the different components of the economy's
monetary assets.

3.Create a conceptual overview of the monetary and financial

systems in the modern economy, preferably in a compact diagram,
listing only the principal institutions and transactions.
I can provide a conceptual overview of the monetary and financial systems in the modern
economy through a compact diagram. Please see the diagram below:
This diagram provides an overview of the principal institutions and
transactions in the modern monetary and financial system. The central
bank is at the top of the diagram and has two primary functions:
regulating the money supply and overseeing the banking system.

Below the central bank are commercial banks, which offer loans and
accept deposits from customers. These banks make money by
charging interest on loans and paying interest on deposits.

Other financial institutions, such as investment banks, insurance

companies, and pension funds, also play a role in the financial system.
These institutions invest in securities, such as stocks and bonds, and
manage the assets of individuals and businesses.

The transactions in the system involve loans, deposits, and securities.

Borrowers take out loans from commercial banks, which they must
repay with interest. Lenders, or depositors, provide the funds for these
loans by depositing money in the bank, which the bank pays interest
on.

Investors buy and sell securities, such as stocks and bonds, in the
financial markets. These securities represent ownership in companies
or governments and can be bought and sold for profit.

Overall, the modern monetary and financial system is a complex

network of institutions and transactions that enable the flow of money
and investment throughout the economy.