RBSE Class 12 Economics Notes Chapter 17 Money: Meaning, Functions and Importance

Rajasthan Board RBSE Class 12 Economics Notes Chapter 17 Money: Meaning, Functions and Importance

  • The exchange of goods against other goods without the use of money is called barter system.
  • In barter system, people used to exchange goods for fulfilment of their needs.
  • Many difficulties were faced in exchanging goods/services through barter system.
  • To overcome the difficulties of barter system, money was invented as a common medium of exchange.
  • Invention of money is thought to be the most important among the inventions of human civilization.
  • After the invention of money, the difficulties of exchange of goods through barter system were removed.
  • After the invention of money, all types of exchanges took place through use of currency.
  • Now, money began to be accepted as a medium of exchange and a measure of value.
  • Money also functions as a tool for accumulation of value and unit of accountancy.
  • There are many definitions of money. In simple words, money is accepted as a medium of exchange and acts as a measure and a store of value and basis of deferred payments which is accepted by the people in an independent, extensive and general form.
  • With the help of money, a person can easily transfer his purchasing power to another person. It is a basis of credit.
  • Money provides liquidity to capital or wealth.
  • In the present time, mone;/ has become an important component in economic field.
  • Money is a basis of market system and a key to measure economic development-
  • Money has made conversion of savings into investment easier.
  • Money is also a basis of social prestige.
  • Money has made possible the division of labour and specialisation in the industrial world.
  • It is necessary to keep proper control on money, otherwise it can become a reason for inflation.
  • It is a correct saying that “Money is a good Servant, but a bad Mistress”.
  • Demonetization is a process through which the central bank of a country seizes legality of currency in circulation to put out of circulation black money and fake currency, and issues new currency.

RBSE Class 12 Economics Notes Chapter 17 Money: Meaning, Functions and Importance

Important Definition of money

  1. According to Hartley Withers, “Money, is that commodity through which we sell and purchase goods”.
  2. According to Walker, “Currency is that which does the work of a currency”.
  3. According to Knapp, “Anything which is declared by the state as money, becomes money”.
  4. According to Seligman, “Money is one thing that possesses general acceptability”.
  5. According to Kinley, “Money is such commodity which is generally used and accepted as a medium of exchange and measure of value.”
  6. According to Marshall, “Money includes all these commodities which are generally accepted without investigation and doubt for purchase of goods and services and as a means to pay for expenses at a specific place and time.”

RBSE Class 12 Economics Notes Chapter 17 Money: Meaning, Functions and Importance

Important terminology

  1. Barter system : In this system, people fulfil their various needs through exchange of goods.
  2. Money : Money (currency) is any such thing which is readily accepted as medium of exchange, measure of value, and value transfer and value storage.
  3. Store of value : Store of value implies store of wealth as currency for future use.
  4. Legal Money : Legal money implies such currency the acceptability of which is legally binding on common people.
  5. Deferred payment : Deferred payments refer to those payments which are not made immediately, but are made at some time in the future.
  6. Double Combination : Double combination of wants implies that the two individuals are in possession of such goods which they are willing to exchange for the satisfaction of their wants.
  7. Indivisible Commodity : Indivisible commodities are those whose value becomes much lesser or zero if divided into parts. Example – Buffalo, Cow, etc.
  8. Ability to pay : If someone is in a position to pay back his loans it is called his ability to pay.
  9. Liquidity : Money can be used immediately for any purpose at any time. This feature of money is termed as liquidity.
  10. Accounting unit : When various transactions are accounted in terms of money then it works as an accounting unit.

RBSE Class 12 Economics Notes