Money Supply and Functions of Money

The video introduces the unit on Money & Banking, explaining the concept of money, its functions, and the historical context of the barter system. It covers the primary and secondary functions of money, such as medium of exchange and store of value. The concept of money supply is detailed, including its components like M1, M2, M3, and M4. The video also defines fiat money and legal tender money. The session concludes with a brief wrap-up and homework instructions.

What was one of the main issues with the barter system?

• Lack of a common measure of value

• Excessive use of currency

• Over-reliance on technology

• High transaction costs

Which of the following is a primary function of money?

• Medium of exchange

• Legal tender

• Standard of deferred payments

• Store of value

Which of the following is NOT a function of money?

• Store of value

• Measure of value

• Source of income

• Medium of exchange

Why is money considered a 'store of value'?

• It is accepted by the government

• It is used for international trade

• It can be saved and used in the future

• It can be used to measure the value of goods

What does the term 'money supply' refer to?

• The total currency in circulation

• The total amount of money created by the government

• The total volume of money held by the public at a specific time

• The amount of money banks are willing to lend

Which measure of money supply is considered the most liquid?

• M1

• M2

• M3

• M4

What is included in M1 measure of money supply?

• Currency, demand deposits, and savings deposits

• Currency, demand deposits, and other deposits with RBI

• Currency, savings deposits, and time deposits

• Currency, time deposits, and post office deposits

What is the primary difference between M1 and M2?

• M1 includes time deposits, M2 does not

• M2 includes savings deposits, M1 does not

• M1 is less liquid than M2

• M2 is only used for international transactions

What distinguishes fiat money from other types of money?

• It is used only for international trade

• It is accepted by government order

• It is backed by a physical commodity

• It is not recognized by any government

What is legal tender money?

• Money that is only used in digital form

• Money that is used for barter

• Money that is legally recognized for transactions

• Money that is backed by gold