Why study Money

Money, banks and financial system

as a whole play a vital role in national
economy.
Availabilty of money at a particular
point of time and the rate at which it
grows over time has important
implications for inflation, interest rate
and economy’s overall functioning.
Projected rate of economic growth
Land + Lab+Capital+Entrepreneur
GDP=Rent +Wage+Interest+Profit
Defining Money
Money- Money is what money does.
Broad Approach
Money- Narrow Approach- By
Functions
Wealth- refers to the stock of assets
minus debts. Inventory of all assets
holding
Income- Flow of earning over some
time interval

Money- is anything generally

acceptable as a medium of
Exchange- Society widely accepts it
to settle transactions.
Are Debit cards Money?
Money & instruments to Withdraw
money.
Liquidity- how quickly and easily we
convert anything into money
Money and near money
Functions of Money
1. Medium of Exchange
General Acceptability.
Primary Function
Classical Economists- has only one
function that is med of exch
2. Unit of Account
Values of goods and services are
stated in units of money
Barter system- Number of price
calculation was very high
N.(N-1)/2
N- number of commodities
5.(5-1)/2= 10 calculations
Inefficient
Monetary economy- An economy that
uses money as a medium of
exchange. Each commodity will have
a unique price tag. The medium of
exchange nearly always also serves
as the unit of account.
3. Store of Value
Means of storing todays purchasing
power to purchase something in
future. Case of some goods under
barter:
Perishable
Bulky/large in size
Hoarding a variety of goods

JM Keynes- Money is an asset.

4. Standard of deffered payments
Pmt that is deffered to the future.
Barter system- Population was very
less and Commodities exchanged
were very few.
Problems under barter –
- Double coincidence of wants
- Transaction cost- high
- As population increases and
number of commodities in the
market increased then barter
system became infeasible
- Search efforts and time given
Barter Vs. Monetary economy-