Money and Banking
Haryana Board · Class 12 · Economics
Flashcards for Money and Banking — Haryana Board Class 12 Economics. Quick Q&A cards covering key concepts, definitions, and formulas.
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Explore the full setWhat is barter exchange and what is its main limitation?
Answer
Barter exchange is the direct exchange of commodities without using money as a medium. Its main limitation is the 'double coincidence of wants' - it requires finding someone who has what you want and …
List the three main functions of money in a modern economy.
Answer
1. Medium of Exchange - facilitates transactions by eliminating barter problems 2. Unit of Account - provides a common measure to express value of goods and services 3. Store of Value - allows wealth …
What happens to the purchasing power of money when there is a general increase in price level?
Answer
When there is a general increase in price level (inflation), the purchasing power of money decreases. This means a unit of money can now purchase less of any commodity than before. For example, if pri…
What determines the demand for money in an economy?
Answer
The demand for money is determined by: 1. Income level - higher income leads to more transactions, hence higher money demand 2. Interest rates - higher interest rates reduce money demand as people pre…
What is the Reserve Bank of India (RBI) and when was it established?
Answer
The Reserve Bank of India (RBI) is India's central bank, established in 1935. It performs several important functions: issues currency, controls money supply, acts as banker to the government, maintai…
What is 'high-powered money' or 'reserve money'?
Answer
High-powered money (also called reserve money or monetary base) is the currency issued by the central bank that can be held by the public or commercial banks. It acts as the basis for credit creation …
Explain how commercial banks make profit.
Answer
Commercial banks make profit through the 'spread' - the difference between interest rates they pay to depositors and the rates they charge from borrowers. For example, if a bank pays 4% interest on de…
What is Cash Reserve Ratio (CRR) and why is it important?
Answer
Cash Reserve Ratio (CRR) is the percentage of deposits that banks must keep as reserves with the RBI. It's a legal requirement that limits credit creation. For example, if CRR is 20%, banks must keep …
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