Money and Inflation Notes PDF

Money and Inflation Notes PDF | Money is at the center of all all economic activities in a modern world, to satisfy her his needs an individual requires money to buy good and service. Cash isn’t just the mechanism of trade however it is additionally utilized the store esteem. Individuals set aside cash for their future necessities.

Human needs are limitless and an individual can’t fulfill all needs by one’s own produce. Hence, an individual attempts to fulfill greatest potential needs via common trade of merchandise and administration.

In ancient times, human beings used to satisfy their wants by exchanging goods and service among themselves, such a system of exchange for satisfying wants was called a barter system.

Money and Inflation Notes

Money and Inflation Notes PDF

Meaning of a Barter System

Barter System is a system of exchange where goods or services are directly exchange for other goods or service without using a medium of exchange, such as money.

Limitations of a barter system

In the earlier years, individuals lived a simple village life, had less needs and carried out agricultural exchange, exchange of goods and service which was sufficient for their sustenance, for example, a farmer cultivating wheat would store the required stock and would exchange the remaining wheat to get rice, clothers or shoes. Similarly the shoemaker get clothes and food, ghee by exchanging the shoes he made. Teachers used to get food in exchange for knowledge and the artists would be patronized for their entertaining arts.

Increasing population and socioeconomic development resulted in an increase and change in demands, making them more specific. Industrialization, urbanization, division of labor and specialization made the Barter system limited as less applicable. the Mutual exchange decreased and the personal needs increased.

Problem of Mutual Adjustment of Wants

With socioeconomic development, the need of human being increased and so the economic structure which was simpler in earlier times became more complicated. Now those who had rice to exchange for wheat did not need wheat but clothes under barter. While on the other hand one who had clothes did not want rice but wanted ghee in exchange for their clothes. Thus, there was a difficulty in establishing a need for each other’s good or services to make the barter possible, a making it a challenge to establish a barter between invisible goods.

Difficulty in storing value

There was an increasing problem in storing value. Here value means exchange value.

A farmer may exchange wheat for pair of shoes or cloth, but when productivity rises and she/he produces more wheat there arises a problem of strong surplus wheat. If wheat can be stored for a long period then at a future date such stock of wheat can be exchanged for new pair of shoes or cloths or rice. but the question arise, how to store wheat?

Problem of Measurement of Value

With the introduction of division of labor and specialization in an industry driven economy, the issue of measuring the value of goods and service emerged. Exchanging wheat for rice was simpler but now large number of goods became available for exchange against wheat and hence it became difficult to determine and maintain the exchange value of wheat. If 20 Kg. of wheat is equal to 40 Kg. of rice, 10 Meters of textile and 1 Kg. Ghee; in a modern structure the questions of measurement arise as, how much of textile can exchange for 1 Kg. Ghee? Or then again the amount of rice can trade for 1 Kg. Ghee? It became difficult to determine such measures and hence arose a need for universally acceptable measuring rod.

This led to the origin of money, which became a standard measure of value and a common denomination of trade.

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Origin and Development of the concept of Money

Evolution of Money : In order to simplify the procedure exchange and to introduce a universally acceptable medium which satisfies the store of value function under the barter system, commodities and animals were used as a medium of exchange in India.

Agriculture being the major sector of the economy there was a large production of crops of which the required stock stored rest of the crops were sold to buy animals. When required, the animal could also be sold to get goods, service or even the crops in return. In this way animals like horse, cow and buffalo became the means of exchange value for money and trade.

The use of animals as a standard measure and a common medium of trade also became a limitation and caused difficulties. Animal are mortal, they get sick and die, therefore the storage of wealth in form of animals was not advisable. thus, valuable minerals-stones were used instead of animals. At the onset of imperialism the use of coins started, as a means of trade and exchange of goods and services in the kingdom. The main impediment was that they were utilized in restricted social orders and locales.

A majority rules system and industrialization motivated the requirement for the cutting edge cash for the purpose of trade. By the support of central government the money became widely accepted as a means of exchange of goods and services. Money also succeeded in overcoming the limitation of storage of value for money. The coming of banking framework made it more straightforward to move and capacity of Money.

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Meaning of Money and functions of money

As indicated by Marshall “Cash is that medium which is utilized for of trade undoubtedly or examination paying little mind to time or place”.

While Robertson defines money as “What is accepted universally in exchange of goods or services”. Subsequently, that which carries out the roles of cash is called cash. In order to understand money, it is necessary to understand the functions of money.

Functions of Money

  • Money as a medium of Exchange
  • Money as a store of Value
  • Money as a measure of Value

Types of Money

  • Commodity Money
  • Animals Money
  • Metal Money
  • Paper Money
  • Plastic Money
  • Banking Money

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