This GSEB Class 12 Economics Notes Chapter 3 Money and Inflation covers all the important topics and concepts as mentioned in the chapter.
Money and Inflation Class 12 GSEB Notes
Meaning of Barter System:
Barter system is a system of exchanging goods or services for other goods or services without using a medium of exchange, such as money. For example, a farmer cultivating wheat would exchange wheat to get rice or clothes, teachers used to get food in exchange for knowledge.
Limitations of Barter System:
- Issue of mutual adjustment of wants
- Difficulty in storing value
- Problem of measuring value and
- Lack of common standard of measurement of value.
Origin and Development of concept of Money:
- Initially there was universally acceptable medium of exchange in barter system.
- In agricultural economy the animals like cow, buffalo and horse became the means of exchange values for money and trade.
- Animals are mortal, they get sick and die therefore storage of wealth in the form of animals was not advisable. Hence, valuable minerals – coins were used instead of animals.
- At the onset of imperialism the use of coin started as a medium of exchange of goods and services in the kingdom.
- Democracy and industrialization inspired the need for the modern money as a means of exchange and the money became widely accepted as a means of exchange. The advent of banking system made it easier to transfer and storage of money.
Meaning and Functions of Money:
Meaning of Money:
Money is that which performs the functions of money as a medium of exchange.
Definitions of Money:
- Marshall: Money is that medium which is used as a means of exchange without any doubt or investigation regardless of time or place.
- Robertson: What is accepted universally in exchange of goods or services.
Functions of Money:
- As a medium of exchange,
- As a store value
- As a measure of value and
- As a standard of defferred payment.
Types of Money:
- Commodity money,
- Animals money
- Metal money
- Paper money
- Bank money and
- Plastic money (Credit card, Debit card).
Meaning and Definition of Inflation:
Meaning of Inflation:
In a simple sense, inflation means a rise in the general price level. It is a monetary event and economic problem.
Definition of Inflation:
- Dr A. E Lemer: A situation of excess demand over supply of goods is called inflation.
- Dr A. C. Pigou: Inflation is said to occur when monetary income rises faster than real income.
- Dr J. M. Keynes: The real situation of inflation is created with increase in money/income beyond the level of the full employment of factors of production.
Characteristics of Inflation:
- Constant rise in price level,
- Price rise in all sectors of economy,
- Purchasing power of money decreases,
- The rise in price level after full employment and
- Keeping control over increase in price level by rules or law, it is considered inflation.
Causes of Inflation:
- Increase in demand
- Increase in supply of Money,
- Increase in public expenditure
- Over-population.
- Increase in cost of production.
- Other reasons
- Taxation policy
- Increase in price of import
- Scarcity.