Q. 1. Complete the correlation : (Answers)
1) Primary function of money : Medium of exchange : : Secondary function of money : Transfer of value
2) Contingent Function of money : Basis of credit :: Secondary functions of money : standard of deferred payments.
3) Commodity money : Shells : : Plastic money: Credit card
4) Divisibility : Smaller denomination:: Portability : Easy to carry from one place to another.
5) Barter system : Goods : : Modern economy : Money
Q. 2. Give economic terms:
1) The act of exchanging goods for goods – Barter system
2) Provision for making payments in future – . Deferred payment
3) System that makes use of currency for facilitating payments – Modern economy
4) Credit instrument through which bank deposits are transferable – Cheque, demand draft
5) Monetary value stored and transferred electronically by means of computer hard drive or servers – Electronic money (E-money)
6) Money not accounted for in the bank and not disclosed to the government – Black money
Q. 3. Choose the correct option :
1) Arrange in the order of evolution of money.
a) Metallic money
b) Animal money
c) Metallic coins
d) Commodity money
Option :
1) a, b, c, d
2) b, d, a, c
3) d, c, a, b
4) c, a, b, d
2) Arrange in the order of evolution of money.
a) Plastic money
b) Paper money
c) Electronic money
d) Credit money
Option :
1) b, d, a, c
2) a, b, c, d
3) d, c, b, a
4) c, b, a, d
Q. 4. Identify and explain the concepts from the given illustrations :
1) Vasantsheth provides coal from his shop to farmers in exchange for foodgrains.
Ans: Concept: Barter System
Explanation:
(1) Barter system refers to exchange of goods for goods.
(2) Vasantsheth exchanges coal (one good) for food grains (another good) from farmers.
(3) Hence, the given illustration relates to barter system.
2) Babanrao deposits his money in a nationalized bank.
Ans : Concept:Bank Money
Explanation:
(1) Bank money means the cash deposited by the people in bank account i.e. money deposited in current account and savings account.
(2) Babanrao deposits his money in a nationalized bank.
(3) Hence, the given illustration relates to the concept of bank money.
3) Charu used her debit card to purchase a shirt for her younger brother.
Ans : Concept:Plastic Money
Explanation:
(1) On the background of global economy, cashless transactions gained importance. It resulted in the introduction of plastic money.
(2) Debit cards and credit cards are used as plastic money.
(3) Charu made use of plastic money in the form of debit card to purchase a shirt for her younger brother.
(4) Thus, the given illustration relates to concept of plastic money.
4) Malathi purchased a house through an agent. The agent accepted the commission amount in cash but did not issue a receipt to her.
Ans: Concept: Black Money
Explanation:
(1) Black Money is any money which is received in cash but not accounted for and on which tax is not paid to the government.
(2) In this case, the agent accepted the commission amount in cash from Malathi. However, he did not issue any receipt indicating that he will not account this money.
(3) In other words, the agent won’t pay any tax on the amount he received as commission.
(4) Hence, the given illustration relates to the concept of black money.
5) To prevent misuse/fraudulent use of the national currency, a note ban is imposed on its use at certain times.
Ans: Concept: Demonetization
Explanation:
(1) Black money creates obstacles in the economic development.
(2) To control black money, demonetization is one of the tools adopted by many countries.
(3) Demonetization refers to the withdrawal of a currency (coin or note) from use as legal tender.
(4) A note ban refers to prohibition of use of the currency as legal tender.
(5) Thus, the given illustration relates to the concept of demonetization.
Q. 5. State with reasons whether you agree or disagree with the following statements :
1) There are no difficulties in barter system.
Ans: I disagree with the above statement. There are many difficulties associated with the barter system.
Reason:
1) Problem of double coincidence of wants : Lack of double co-incidence of wants was one of the major limitations of barter system. For instance, person ‘A’ has cloth and he wants rice in exchange and person ‘B’ has rice but he does not want cloth in exchange.
2) Lack of common measure of value : While exchanging goods for goods, there was no standard unit of account to determine the value of a commodity. e.g., it was difficult to compare two litres of milk with two kilograms of rice.
3) Difficulties in storage of goods : It is necessary to store goods for future consumption. Sometimes due to perishable nature of certain goods it was difficult to store them for future.
4) Indivisibility of certain goods : In barter system it was inconvenient to divide animals, house etc. into small parts, so it was difficult to fix proportion of one commodity in exchange for another commodity.
5) Problem of making deferred payments : Deferred payment means payments to be made in future. Repayment of loan was difficult due to exchange of commodities, e.g. it was difficult to repay the perishable goods in the same condition in future.
2) There are many good qualities found in modern currency.
Ans: I agree with the above statement.
Reason:
The qualities of money are as follows :
1) General Acceptability : Anything which is used as money must be easily accepted by all for exchange purpose.
2) Divisibility : Money should be easily divisible into smaller denominations to facilitate small transactions.
3) Durability : Money should also possess the characteristic of durability. Currency notes and coins are being used repeatedly and shall continue to do so for years together on account of durability.
4) Cognizability : Money must be easily recognised. It should have certain distinct marks so as to avoid confusion by the receiving person.
5) Portability : It should be easy to carry from one place to another without any difficulty, expense and inconvenience, e.g. currency notes are easily portable
6) Homogeneity : Money of a particular denomination must be homogeneous or identical in its features.
7) Stability : Money should have a stable monetary value. It serves as a measure of value to exchange goods and services. These goods can be sold and purchased in future as per requirements.
3) Many tasks are accomplished by money.
Ans: I agree with the above statement.
Reason:
Functions of Money
A) Primary Functions :
1) Medium of Exchange : The most important function of money is to serve as a medium of exchange. Any commodity can be purchased or sold for money.
2) Measure of Value or Unit of account : Price is the value of a commodity or a service expressed in terms of money. Money enables to compare the prices of commodities. Different currencies are used to express the value of commodity in different countries.
B) Secondary Functions :
1) Standard of deferred payments : Money has overcome the difficulty of barter system in regards with deferred payment. Payments to be made at a future date is called deferred payments. By serving as a standard measure of payment over a time, money makes borrowing and lending easy.
2) Store of value : Money acts as a store of value. Money not only satisfies wants in the present but also makes provision for satisfaction of wants in future. This is possible due to savings.
3) Transfer of Value : Money enables transfer of value from one person to another and from one place to another. Real assets like building, plot, shop, agricultural land etc. can be sold at one place and can be purchased at another place with the help of money.
C) Contingent Functions :
1) Measurement of National Income : National Income is expressed in money terms. Distribution of national income among the four factors of production is in terms of monetary rewards. e.g. rent, wages, interest, profits etc.
2) Basis of Credit : Commercial Banks create credit money on the basis of primary deposits. Money provides a liquid base for creation of credit money.
3) Imparts liquidity to wealth : Money is called the most liquid asset. Money can be easily converted into any asset and any asset can be converted into money. e.g. a person can purchase gold and if he wants he can sell it and purchase government bonds, securities etc.
4) Estimation of macro economic variables : Macro Economic variables like Gross National Product (GNP), total savings, total investment etc. can be easily estimated in monetary terms. It also facilitates government tax collection, preparation of budget etc.
4) Money can be sent anywhere through electronic means.
Ans: I agree with the above statement.
Reason:
It is possible to send money anywhere due to Electronic Money (E-money). The concept of E-money can be explained as follows:
1) The innovation in smart transactions led to introduction of electronic money.
2) E-money is a monetary value that is stored and transferred electronically through a variety of electronic devices such as mobile phones, tablets, smart cards, computers etc.
3) E-money is backed by central bank.
4) It is used for purchases and transactions globally.
5) Digital wallets are also a form of stored electronic money.
6) Thus, through various electronic devices, money can be sent anywhere through electronic means
Q. 6. Answer the following questions on the basis of the following information :
Ganesh travelled to the mall by bus. He gave the conductor ` 10 coin for the ticket. He purchased many commodities from the mall.
At the billing counter, he gave his credit card for payment but the billing clerk informed him that only debit cards were accepted. Since Ganesh had forgotten his debit card at home, he offered to make payment by cash.
1) Identify the types of money used in the information
2) Explain any two of them.
Ans:
The types of money used by Ganesh are as follows:
Rs. 10 coin → Token coin (Type of Metallic coins)
Credit card → Plastic money
Cash → Paper money