Money & Banking

1.Introduction and Meaning

2.Definition
“ Controversial Issue”
“Any commodity that is generally
accepted as a medium of exchange
and a measure of value.”

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3.Functions of Money (182)

“Money is matter of functions four,

A medium, a measure, a standard & store.”

4.Significance of money
in a modern economy (184 -186)

i. Eliminates Problems of Barter System.

ii. Works as a Factor of Production.
iii.Accelerates Pace of Production & Growth.
iv.Lifeblood of a Modern Economy.
v. Other Contributions.
- Consumers’ Choices.
- Money Market & Credit System.
- Efficient Allocations of Financial Resources
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5. The Supply of Money.
i) Sources of Money Supply
-‘A high power money’
-‘Credit Money’

-‘Non-Banking Financial Institutions (NBFIs)

ii) Measures of Money Supply in India

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6.RBI Measures of Money Supply
Four Measures
i M1 = C + DD + OD
ii M2 = M1 + Savings Deposits With POs
iii M3 = M2 + Net Time Deposits With CBs
iv M4 = M3 + Total Deposits With Pos (NSCs)
where,
C =Currency held by the public
DD = Net Demand Deposits With CBs
OD = Other Deposits With RBI
NSCs =National Savings Certificates
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7.Demand for Money
Quantity Theory of Money
A)Fisherian Approach
Irving Fisher
Money as ‘Medium of Exchange.’
MV= PT
B)Cambridge Approach
A C Pigue, D R Robertson & J M Keynes

Money as ‘Store of Value.’

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 Md=KPY
Md = DD for Money
K = Proportionality factor
PY = Nominal National Income
C) Keynesian Approach
Three Motives
i) Transactions Motive - Active
ii) Precautionary Motive- Idle
iii)Speculative Motive- Idle
INTEREST RATES
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