Money and Its Functions for CUET Economics

AnswerB · goods are swapped directly for goods

1. In barter, a farmer trades wheat for cloth directly.

AnswerD · the lack of a double coincidence of wants

1. A trade happens only if each side wants what the other has, at the same time.

2. A weaver who wants rice must find a rice farmer who wants cloth.

AnswerA · trade pots for rice first, then rice for shoes

1. Without a double coincidence, trade needs a chain of swaps, which wastes time.

2. Money removes this: the potter sells pots for money and buys shoes with it.

AnswerC · some goods cannot be divided without losing their value

1. Indivisibility: a cow is worth a lot, but cutting it in half destroys its value.

2. Money can be divided into small amounts.

AnswerB · A-II, B-IV, C-I, D-III

1. Each difficulty of barter matches one function of money.

AnswerA · Only I

1. With no common unit, wheat has a price in cloth, in rice, in salt, and so on. I is true.

2. Many goods spoil or cost a lot to store, so II is false.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Under barter, a specialist must find people who want her product and have what she needs.

2. Money removes that search, so people can specialise. R explains A.

AnswerD · Too much money chasing too few goods

1. A barter economy has no money, so 'too much money' cannot be its problem.

AnswerB · 10

1. Each pair of goods needs one rate: 5 × 4 ÷ 2 = 10.

2. With money as the unit of account, only 5 prices are needed.

AnswerC · a medium of exchange

1. Money is handed over in exchange for the good: it is the medium of exchange.

AnswerA · a unit of account (measure of value)

1. The price tag measures the shirt's value in rupees; nothing has been paid yet.

AnswerD · a store of value

1. Money holds purchasing power over time, so it can be kept and spent later.

AnswerA · A-III, B-I, C-IV, D-II

1. Accounts measure value; spending exchanges money for goods.

2. Cash kept for later stores value; EMIs settle a payment deferred over time.

AnswerA · Producing goods

1. Money helps exchange, measures value and stores it; goods are produced by factors of production, not by money.

AnswerC · a standard of deferred payment

1. Future payments are fixed in money, so both sides know what is owed.

AnswerB · medium of exchange and unit of account

1. Money must first be accepted in exchange and measure value; storing value and settling future payments follow from these.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Inflation eats into money's purchasing power, which weakens it as a store of value.

2. R explains A.

AnswerC · Both I and II

1. Money is the most liquid asset. I is true.

2. Other assets store value but are less liquid. II is true.

AnswerD · it can be spent at once without loss

1. Liquidity is how easily an asset can be turned into purchases without loss; money is already the means of payment.

AnswerA · Unit of account

1. Different things can be added only when each is valued in one common unit, rupees.

AnswerD · It is widely accepted, durable and divisible

1. Money must be accepted by all, last, divide into small amounts and move easily.

AnswerA · Only I

1. A seller accepts money and spends it on anything, so no matching of wants is needed. I is true.

2. Money makes exchange easier but does not create more goods. II is false.

AnswerB · a standard of deferred payment

1. The payments will be made in future, and money fixes their amount today.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Goods keep their real value while money buys less each day.

2. R explains A.

AnswerD · cannot be refused by anyone in settlement of a payment

1. Currency notes and coins are legal tender: the law requires them to be accepted.

AnswerB · has value because the government declares it money

1. A ₹500 note's paper is worth very little; its value comes from the government's order.

AnswerC · A cheque

1. A cheque is an order to a bank to pay; a seller may refuse it.

2. Notes and coins issued under law must be accepted.

AnswerC · the Reserve Bank of India

1. The RBI has the sole right to issue currency notes; ₹1 notes and coins are issued by the Government of India.

AnswerA · Only I

1. Coins are issued by the government and put into circulation through the RBI. I is true.

2. Payment by cheque or bank transfer can be refused, so deposits are not legal tender. II is false.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. People accept notes because the law makes them acceptable and everyone trusts that others will accept them.

2. R explains A.

AnswerB · full-bodied money

1. Full-bodied money is worth as much as metal as it is as money.

2. Today's coins are token money: the metal is worth less than the face value.

AnswerC · is within his rights, because a card payment is not legal tender

1. Only currency notes and coins are legal tender; other means of payment can be refused.

AnswerA · anything that is generally accepted as a medium of exchange and a measure of value

1. Money is defined by what it does: it is accepted in exchange and measures value.

2. This is why bank deposits count as money though they are not notes.

AnswerD · the total stock of money held by the public at a point of time

1. Money supply is a stock measured on a date.

2. 'The public' means households and firms; money held by the government and the banking system is left out.

AnswerA · currency held by the public + demand deposits with banks + other deposits with the RBI

1. M1 is narrow money: the most liquid forms, ready to spend.

AnswerB · the Reserve Bank of India

1. The RBI publishes the monetary aggregates as part of its statistics.

AnswerB · M1

1. M1 contains only currency and deposits that can be spent at once.

AnswerB · ₹810 crore

1. M1 = 500 + 300 + 10 = ₹810 crore.

AnswerB · ₹1,710 crore

1. M3 = M1 + net time deposits with banks.

2. = 810 + 900 = ₹1,710 crore.

AnswerB · ₹870 crore

1. M2 = M1 + savings deposits with post office savings banks.

2. = 810 + 60 = ₹870 crore.

AnswerD · M3

1. M1 and M2 are narrow money; M3 and M4 are broad money, and M3 is the measure most used.

AnswerA · M1, M2, M3, M4

1. M1 holds only currency and demand deposits; each later measure adds less liquid deposits.

AnswerC · Cash held by a family

1. Only money held by the public (households and firms) is counted.

2. Money with banks and the government is not in the hands of the public.

AnswerB · can be withdrawn at any time

1. Current accounts and the withdrawable part of savings accounts are demand deposits.

2. Fixed deposits are time deposits.

AnswerA · Only I

1. Money supply is measured on a date, so it is a stock. I is true.

2. Time deposits enter at M3, not M1. II is false.

AnswerB · A-IV, B-III, C-II, D-I

1. M2 builds on M1 with post office savings deposits; M3 builds on M1 with bank time deposits; M4 builds on M3 with all post office deposits.

AnswerC · deposits of other public bodies with the RBI

1. Banks' reserves and the government's balances are not money held by the public.

2. Other deposits are a small item belonging to other public bodies and institutions.

AnswerA · ₹900 crore

1. M3 = M1 + time deposits, so M1 = 2,500 − 1,600 = ₹900 crore.

AnswerD · ₹755 crore

1. M1 = 400 + 350 + 5 = ₹755 crore.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. M3 = M1 + time deposits, and time deposits are positive. R explains A.

AnswerA · Only I

1. M2 = M1 + post office savings deposits. I is true.

2. M3 = M1 + bank time deposits; post office deposits come back only in M4. II is false.

AnswerC · M1 falls by ₹20,000 and M3 does not change

1. Cash with the public (in M1) falls by 20,000.

2. Time deposits rise by 20,000, which are in M3 but not M1, so M3 stays the same.

AnswerD · ₹1,910 crore

1. M4 = M3 + all deposits with post office savings organisations.

2. = 1,710 + 60 + 140 = ₹1,910 crore.

AnswerA · Both A and R are true, and R is the correct explanation of A.

1. Counting banks' cash as well as the deposits it backs would count the same money twice.

2. R gives the rule that explains A.

AnswerA · does not change

1. Currency with the public rises by 10,000 and demand deposits fall by 10,000.

2. Both are in M1, so M1 is unchanged; only its form changes.

AnswerD · M1 falls by ₹50,000; M3 is unchanged

1. Demand deposits (in M1) fall by 50,000, so M1 falls.

2. Time deposits rise by 50,000; M3 = M1 + time deposits, so M3 does not change.

AnswerA · Only I

1. Moving deposits into cash changes the mix of M1, not its total, at first. I is true.

2. Deposits that banks hold with each other are not held by the public, so they are left out. II is false.