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  1. 1. Money (Macro-economics)
  2. 2. Money Definition • Amedium of exchange. • With the help of money any exchange of goods and services can take place. • Money is said to be the most liquid asset among all the assets of a man. • It has general acceptability as a means of payment and liquid characteristic. Keynes called this Liquidity preference.
  3. 3. Money
  4. 4. Money • Generally money is created by the Central Bank or the Government of a country. • These are legal tender money as there is legal compulsion for their acceptance. • They also called as Cash Money. • Another considerable flow of money is Credit Money—created by the commercial banks by their loan transactions
  5. 5. Cash Money Vs Credit Money
  6. 6. Money • Money is regarded any object which is generally accepted as: • medium of exchange • unit of account i.e. common measure of value • standard of deferred payment • store of value • transfer of value.
  7. 7. Money
  8. 8. Functions Of Money
  9. 9. Money
  10. 10. Primary Functions • As medium of exchange, money is used as a means of payment. • As money has ready purchasing power, it facilitates in transacting exchange of goods and services with minimum effort and time.
  11. 11. Primary Functions • As unit of account, money is treated as common measure of value. • value of all goods and services in exchange can be expressed in terms of money. • Such expression gives rise to price system in which money act as a means of calculating the relative prices as absolute prices of goods and services.
  12. 12. Unit Of Account
  13. 13. Secondary Functions • As standard of deferred payment, money can be used in the settlement of debt and future payments. • Loans are advanced and future contracts are settled in terms of money.
  14. 14. Secondary Functions • As store of value, money is hold as an asset in liquid (or cash balance) to use anytime in future. • This is because money has purchasing power which holds commands over goods and services all time – at present and in future. • However use of money as store of value is not without drawbacks. Changes in general price level causes rise and fall in the value of money. When price level rises, value of money falls and vice versa.
  15. 15. As Store of Value
  16. 16. Secondary Functions • As transfer of value, sale and purchase of movable and immovable assets, paper wealth and physical wealth can be made with the help of money. • Thus, value available in the form of asset can be transferred from one person to another with the use of money.
  17. 17. As Transfer of Value
  18. 18. Value Of Money • It means Exchange Value. • It implies how much of goods and services can be obtained in-exchange of a unit of money. • Value of money is inverse of price. • When price level increases, the value of money decrease and vice versa.
  19. 19. Exchange Value
  20. 20. Forms of Money • The total money supply of a country can broadly be classified into two groups — • Cash Money and Credit Money. • It also includes all other financial assets. • The degree of moniness varies widely from asset to asset.
  21. 21. Cash Money and Credit Money
  22. 22. The Components of Money Supply
  23. 23. Forms of Money • In modern monetary transactions, the total stock of money or money supply includes the following: • Metallic money or currency coins • Standard or Full-bodied Coins. • Token coins • Paper Money Or Paper Currency • Credit Or Bank Money
  24. 24. Paper Money & Currency Coins
  25. 25. Metallic Money Or Currency Coins • It refers to the coins made out of metal like gold, bronze, silver, copper, nickel. • Standard or Full-bodied Coins are those coins whose face value is equal to its intrinsic (metallic) value. • Token coins have intrinsic (metallic) value less than its face value. • They generally are of lower denominations are made of cheap metals like nickel and copper. • Token coins are used for exchange of small value.
  26. 26. Metallic Money Or Currency Coins
  27. 27. Standard or Full-bodied Coins.
  28. 28. Paper Money Or Paper Currency • Paper money consists of currency notes issued by the State Treasury or the Central bank of the country.
  29. 29. Paper Money Or Paper Currency
  30. 30. Credit Or Bank Money • Bank demand deposits withdraw-able by issuing cheque has started functioning as money, and cheque are conventionally accepted as a means of payment by the business community in general.
  31. 31. Credit Or Bank Money
  32. 32. Forms of Money • In short, anything and everything that has served as money is generally recognized and accepted as means of payments. But all can serve a good money. • Good money should poses the attributes of general acceptability, cognizability (capable of being known), portability, divisibility, durability, uniformity, adequacy and stability of value.
  33. 33. Good Money Vs Bad Money
  34. 34. Legal Tender And Conventional Money • In modern era, currency money and bank money together constitute the total stock of money or money supply. • Currency money (both currency coins and currency notes) is legal tender money or fiat • money and has general acceptability. • Credit money or bank demand deposits are conventional money and lacks general acceptability.
  35. 35. Legal Tender And Conventional Money
  36. 36. Money Supply • The total stock of money circulating in an economy is the money supply. • The circulating money involves the currency, printed notes, money in the deposit accounts and in The form of other liquid assets. • Monetary policy of a country is concerned with the supply of money. • Narrow money supply is called M1 It consists of notes and coins in circulation and demand deposits with banks and central bank.
  37. 37. Money Supply
  38. 38. Money Supply • As they are quickly and easily used for transactions, they are called transactions money. • Broad money supply, M2, consists of M1 Plus other deposits (savings deposits, time deposits, etc.). • There are some differences in the definitions of money supply from country to country. • To give the best definition of money supply, we like to refer the money supply as currency held by The public, plus deposits.
  39. 39. Money Supply
  40. 40. Thanks…