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

RBSE Class 12 Economics Chapter 17 Multiple Choice Questions

Question 1. M2 may be calculated from which of the following ?
(a) M₁ + Time deposits with commercial banks
(b) M3 + Total deposits with the post office
(c) C + DD
(d) M₁ + Saving deposits with post office
Answer: (d) M₁ + Saving deposits with post office
In simple words: M2 is a measure of money supply that includes M1 (currency and demand deposits) plus savings deposits held at post offices.

🎯 Exam Tip: Remember the different measures of money supply (M1, M2, M3, M4) and what each includes, as these are frequently tested concepts.

Question 2. Which of the following is a primary function of money ?
(a) Medium of exchange
(b) Measure of value
(c) Basis of credit
(d) Price stability
Answer: (a) Medium of exchange
In simple words: Money's main job is to let people buy and sell things easily without needing to trade goods directly.

🎯 Exam Tip: Distinguish between primary, secondary, and contingent functions of money to answer such questions accurately. Medium of exchange and measure of value are primary functions.

Question 3. Which of the following is not a function of money ?
(a) Medium of exchange
(b) Measure of value
(c) Basis of credit
(d) Price stability
Answer: (d) Price stability
In simple words: Money helps in trading, measuring value, and providing loans, but it doesn't automatically keep prices stable.

🎯 Exam Tip: Understand that while money is essential for an economy, maintaining stable prices is a goal of economic policy, not an inherent function of money itself.

Question 4. Which among the following is the prime difficulty of barter exchange system ?
(a) Lack of double coincidence
(b) Non determination of value of currency
(c) Impossibility of future savings
(d) All of these
Answer: (d) All of these
In simple words: The barter system faced problems like needing two people who want each other's goods, not having a common way to value things, and difficulty in saving for the future.

🎯 Exam Tip: When listing difficulties of the barter system, ensure you cover the core issues like double coincidence of wants, lack of a common measure of value, and problems with deferred payments or storage of value.

Question 5. Exchange of goods with other goods is called –
(a) Money system
(b) Commodity-money system
(c) Barter exchange system
(d) Paper currency system
Answer: (c) Barter exchange system
In simple words: When people trade items directly for other items without using money, it is called the barter system.

🎯 Exam Tip: Clearly define key economic terms. Barter system refers to direct exchange of goods and services without the use of money.

RBSE Class 12 Economics Chapter 17 Very Short Answer Type Questions

Question 1. What is barter or exchange system?
Answer: The barter system is when goods and services are directly traded for other goods and services without using money. For example, a farmer might trade wheat for shoes from a cobbler.
In simple words: Barter is directly swapping one item for another without cash.

🎯 Exam Tip: When defining economic terms like 'barter system', always include a simple example to illustrate the concept clearly.

Question 3. Write down two primary functions of money.
Answer: Two main functions of money are:
1. Medium of exchange: Money makes buying and selling easy.
2. Measure of value: Money helps us put a price on different goods and services.
In simple words: Money's main jobs are to help people trade things and to show how much things are worth.

🎯 Exam Tip: Remember that "medium of exchange" and "measure of value" are the two fundamental, or primary, functions of money.

Question 4. Write down two problems of barter or exchange system.
Answer: Two main problems of the barter system are:
1. Problem of double coincidence of wants: Both parties must want what the other has to offer.
2. Problem in measuring value of a commodity: It's hard to decide how much of one item is worth how much of another.
In simple words: Barter makes it hard because two people must want exactly what the other has, and it is difficult to value items against each other.

🎯 Exam Tip: The 'double coincidence of wants' is a key drawback of the barter system and a common point for examiners.

Question 5. How does money provide right of decision to the consumer?
Answer: Money acts as a common way to measure the value of all goods and services. This helps consumers make smart financial choices. For example, it helps them decide what to buy and what not to buy, based on their needs and budget.
In simple words: Money lets consumers decide what to buy by comparing prices and their own needs.

🎯 Exam Tip: Focus on money's role as a unit of account and how this empowers consumer choice when explaining its decision-making aspect.

RBSE Class 12 Economics Chapter 17 Short Answer Type Questions

Question 1. Explain barter or exchange system with the help of an example.
Answer: The barter system is when people trade goods or services directly for other goods or services, without using money. For instance, if Mohan has extra wheat and needs cloth, and Sohan has extra cloth and needs wheat, they can exchange their goods directly. This way, both get what they need without any cash.
In simple words: Barter is trading items directly. Like Mohan giving wheat to Sohan for cloth, if both agree.

🎯 Exam Tip: Always use a clear and simple example when explaining economic systems like barter to demonstrate understanding.

Question 3. Explain the importance of money in modern time.
Answer: In today's world, money is vital for all economic activities. It is hard to imagine how an economy would work without money. As Marshall said, "Money is the central point around which economics revolves." Money helps everyone, from individuals to big businesses, to conduct trade and manage wealth easily.
In simple words: Money is very important today because it is essential for all buying, selling, and managing wealth in the economy.

🎯 Exam Tip: When discussing the importance of money, refer to its pervasive role in economic transactions and how it facilitates complex modern economies, potentially citing a key economist's view.

Question 4. What are the contingent functions of money?
Answer: The extra useful functions of money that make it more convenient are called contingent functions. These include:
(i) Distribution of Social Income – Money helps to share income fairly among all the factors that help produce goods.
(ii) Basis of credit – Money is what makes the credit system possible, allowing banks to give loans easily.
(iii) Liquidity of wealth – Money makes wealth easy to use. People can sell their property in one place and quickly buy another in a different place.
In simple words: Contingent functions of money include helping distribute income fairly, enabling credit, and making wealth easy to move and use.

🎯 Exam Tip: Distinguish contingent functions from primary and secondary functions. Contingent functions often describe how money facilitates broader economic processes like income distribution, credit, and wealth mobility.

RBSE Class 12 Economics Chapter 17 Essay Type Questions

Question 1. Explain in detail the functions of money.
Answer: The functions of money are divided into four main types:
(i) Primary Functions: These are the most basic and essential functions of money.
(a) Medium of Exchange - Money is used to buy and sell goods and services, making transactions simple because it is widely accepted.
(b) Measure of Value – Money helps set the prices of all goods and services, which makes trading easier by giving everything a common value.
(ii) Secondary or Subsidiary Functions: These functions support the primary ones.
(a) Basis of Deferred Payment – Money makes it easy to make payments later because its value generally stays stable. Many business deals today are based on credit.
(b) Store of Value – Money allows people to save their buying power for future use. People can save money and earn interest, fulfilling future needs.
(c) Transfer of Purchasing Power – Money makes it simple to move buying power from one place to another, or from one person to another, without losing money. For example, selling property in one city and buying in another.
(iii) Contingent Functions of Money: These functions make money even more useful and convenient.
(a) Distribution of Social Income – Money helps ensure income from production is shared fairly among different contributors.
(b) Basis of Credit – Money is the foundation of the credit system, making it possible for banks to offer various loans.
(c) Liquidity of Wealth – Money gives wealth the ability to be easily converted and used. Wealth becomes easily accessible and usable.
(iv) Other Functions of Money: Money also performs other important roles.
(a) Basis of Solvency – Having money shows a person's ability to clear payments and repay debts. More money means a greater capacity to pay.
(b) Money acts as a bearer of Options – Money helps people decide how to invest their wealth in different ways, assisting in financial planning.
In simple words: Money's jobs are categorized into primary (like buying/selling, measuring value), secondary (like saving, future payments, moving wealth), contingent (like sharing income, credit, making wealth liquid), and other functions (like showing ability to pay, offering investment choices).

🎯 Exam Tip: For essay questions on functions of money, organize your answer clearly into primary, secondary, and contingent functions, providing a brief explanation for each sub-point. Use clear headings for each category.

Question 2. What is barter system of exchange ? Explain its main drawbacks.
Answer: Meaning of Barter System – A barter system is when goods and services are exchanged directly for other goods and services, without using money. It was common in early human societies.
Disadvantages of barter system – While useful in early times, many problems arose as human needs grew:
(i) Problem of Double Coincidence of Wants – For a trade to happen, both people must want what the other person has and be willing to exchange it. Finding such a match is very difficult in real life.
(ii) Difficulty in Value Measurement – There was no common way to measure value in barter. It was hard to agree on how much of one item (like milk) was worth how much of another (like wheat), leading to disagreements and failed exchanges.
(iii) Difficulty in storage of value – Saving wealth for the future was risky. Most goods were perishable (like milk, fruits) or could be stolen, and storing them required a lot of space. This made future savings hard.
(iv) Problem of Divisibility – Some goods cannot be divided without losing their usefulness. For example, if someone has a horse and wants small amounts of wheat, rice, and cloth from different people, they cannot divide the horse to make these trades. This made transactions difficult.
(v) Problem of Difficulty in deferred payment – It was hard to make credit transactions in barter because future prices of goods were uncertain. This made long-term agreements and loans very difficult.
In simple words: Barter is direct trading without money. Its main problems are needing both people to want what the other has, difficulty in valuing items, problems storing value, issues with dividing goods, and trouble with payments made later.

🎯 Exam Tip: When explaining drawbacks of the barter system, ensure you detail the "double coincidence of wants," "lack of a common measure of value," "difficulty of storage of value," and "indivisibility of certain goods."

Question 3. While explaining the meaning of money, give its definition and throw light on its significance.
Answer: The word 'Money' comes from 'Moneta' in Latin, which was another name for the Roman Goddess Juno. Coins were first made in her temple, so currency was named money. Different economists define money in various ways, but there is no single, universally accepted definition.
Some definitions include:
1. Hartley Withers: “Money is that commodity through which we sell and purchase goods”.
2. Knapp: “Anything which is declared by the state as money, becomes money”.
3. Marshall: “Money includes all those commodities which are generally accepted without investigation and doubt for purchase and sale of goods and services at a specific place and a specific time.”
4. Seligman: “Money is one thing that possesses general acceptability”.
5. Kinley: "Money is such commodity which is generally used and accepted as a medium of exchange and measure of value.”
6. F.A. Walker: “Money is the thing that is used as a currency".
7. Kent: “Money is the thing, that is used as a medium of exchange or accepted as a measure of amount".
From these definitions, money must be generally accepted, act as a medium of exchange, measure value, allow storage of value, and be used for payments. A good definition is: "Money is something that has legal and general acceptance as a medium of exchange, a measure of value, a way to store value, and a method of payment for loans.”
Importance of Money - Money is crucial in today's economy. Marshall said, "Money is the central point around which economic science revolves.” We cannot imagine how an economy would work without money now. This era is often called the age of money due to its importance.
Here are some points showing its importance:
(i) Development of Economy - Money has helped countries grow economically. Governments can make and carry out development plans because of money. Comparing economic growth between countries is also possible thanks to money.
(ii) Basis of Investment – Money makes saving possible. People save money from their earnings to meet future needs and earn interest from banks. These savings are then invested in industries, both by financial institutions and private investors, which boosts economic growth.
(iii) Division of labour and specialisation - Large-scale production, which reduces costs, is possible today because of division of labor and specialization. Money is essential for this system to work.
(iv) Freedom of decision in economic field – Money gives freedom to both producers and consumers. Consumers can decide how to spend their money to get the most satisfaction, and producers can choose the best ways to produce to maximize their output at the lowest cost.
(v) Basis of social prestige – Money provides economic freedom and also social status. Having more money means higher standing in the economy.
In simple words: Money, from 'Moneta', has many definitions but is basically something widely accepted for trade, valuing things, and storing wealth. It is very important today because it helps economies grow, encourages savings and investment, allows for specialized work, gives people choices, and can even bring social standing.

🎯 Exam Tip: When answering about the meaning, definition, and significance of money, always include a few key definitions from different economists and structure the importance points clearly with relevant examples.

RBSE Class 12 Economics Chapter 17 Multiple-Choice Questions

Question 1. Exchange of goods is possible in :
(a) Limited requirements
(b) Unlimited requirements
(c) Diverse areas
(d) None of these
Answer: (a) Limited requirements
In simple words: Trading goods directly is easier when people only need a few specific things.

🎯 Exam Tip: Barter systems are most feasible in economies with limited needs and simpler structures, which helps avoid the "double coincidence of wants" problem.

Question 3. "One important feature of money is to provide liquidity to capital”. Who said this?
(a) Marshall
(b) Pigou
(c) Keynes
(d) Hartley Withers
Answer: (c) Keynes
In simple words: John Maynard Keynes highlighted that money's ability to be quickly turned into other things is a key aspect.

🎯 Exam Tip: For quotes, try to link the economist to their famous theories or concepts. Keynes is known for his work on liquidity preference.

Question 4. "Money is that commodity through which we sell and purchase goods". Who said this?
(a) Marshall
(b) Crowther
(c) Hartley Withers
(d) None of these
Answer: (c) Hartley Withers
In simple words: Hartley Withers described money as the thing we use to buy and sell stuff.

🎯 Exam Tip: Recognizing specific definitions by economists is important. Practice associating quotes with their authors.

Question 5. “Money is that thing that possesses general acceptability”. Who said this ?
(a) Walker
(b) Seligman
(c) Pigou
(d) None of these
Answer: (b) Seligman
In simple words: Seligman emphasized that money is special because everyone accepts it for transactions.

🎯 Exam Tip: General acceptability is a crucial characteristic of money. Ensure you know which economists highlighted this aspect in their definitions.

Question 7. Is it possible to abolish money in present time?
(a) Yes
(b) No
(c) Difficult
(d) None of these
Answer: (b) No
In simple words: In today's complex world, it's not possible to remove money because it makes trading and managing economies work so easily.

🎯 Exam Tip: Consider the complexities of a modern economy; money's functions are too integrated to be easily removed without causing massive disruption.

Question 8. What is Demonetisation?
(a) Put fake currency out of circulation
(b) Ending the legality of legal currency
(c) Removing entire currency from the system without replacing it with new currency
(d) None of the options
Answer: (b) Ending the legality of legal currency
In simple words: Demonetisation means when a country officially stops certain banknotes or coins from being legal money.

🎯 Exam Tip: Demonetisation typically aims to curb black money, counterfeiting, or terrorism financing by replacing old currency with new, valid tender.

Question 9. Basis of credit is which function of money ?
(a) Primary
(b) Auxiliary
(c) Contingent
(d) None of these
Answer: (c) Contingent
In simple words: Money's role in making credit and loans possible is considered a contingent function.

🎯 Exam Tip: Understanding the classification of money's functions is important. "Basis of credit" is generally grouped under contingent or secondary functions.

Question 10. Function of money is :
(a) Medium of exchange
(b) Measure of value
(c) Store of value
(d) All of the options
Answer: (d) All of the options
In simple words: Money acts as a way to trade things, a way to measure how much things are worth, and a way to save wealth for later.

🎯 Exam Tip: This question tests your knowledge of the three main functions of money: medium of exchange, measure of value (unit of account), and store of value.

RBSE Class 12 Economics Chapter 17 Very Short Answer Type Questions

Question 1. Write two conditions necessary for barter system.
Answer: Two conditions needed for a barter system to work are:
1. Limited wants: People should not have too many different needs.
2. Limited area: The trading should happen within a small local area.
In simple words: Barter works best when people have few needs and trade locally.

🎯 Exam Tip: Barter thrives in simple economies; complex needs and large geographic areas complicate it due to the 'double coincidence of wants'.

Question 2. Mention the problem in exchange of indivisible goods in barter system.
Answer: In the barter system, it is difficult to trade goods that cannot be divided easily, such as a buffalo, cow, or goat. If these items are split, their value becomes zero. This makes exchanging them for smaller, multiple items very challenging.
In simple words: Barter struggles with goods that can't be split (like a whole cow) because their value is lost if divided for trade.

🎯 Exam Tip: The problem of indivisibility is a key limitation of barter, especially for large, valuable assets that cannot be fragmented for smaller trades.

Question 3. What do you mean by double coincidence of wants ?
Answer: Double coincidence of wants means that for a trade to occur in a barter system, both individuals must possess goods that the other person wants, and both must be willing to exchange them simultaneously. For example, a shoemaker needs wheat, and a farmer needs shoes, and they meet to trade.
In simple words: It means both people must want exactly what the other person has to offer for a trade to happen.

🎯 Exam Tip: This is a fundamental concept in economics; always remember that "double coincidence" means a mutual matching of desires for goods to be exchanged directly.

Question 4. What do you mean by medium of exchange?
Answer: As a medium of exchange, money helps people buy and sell goods and services easily. It acts as an intermediate item that is universally accepted in transactions, making trade smoother than direct bartering.
In simple words: Money is something everyone accepts when buying or selling, making trades simple.

🎯 Exam Tip: The 'medium of exchange' function is primary because it solves the core problem of the barter system – the need for a double coincidence of wants.

Question 5. What is the medium to exchange in indirect transaction ?
Answer: In an indirect transaction, the medium of exchange is money. Instead of trading goods directly, money is used as an intermediary to facilitate the purchase and sale of goods and services.
In simple words: Money is used as the go-between for trade when people don't swap goods directly.

🎯 Exam Tip: Emphasize that money's role as a medium of exchange is what makes indirect transactions possible, overcoming barter's limitations.

Question 7. Is value of money stable?
Answer: The value of money is generally more stable compared to the value of other commodities. While its purchasing power can change due to inflation or deflation, it still offers a relatively consistent measure for economic transactions over time.
In simple words: Money's value stays more steady than most other things, even if it can change a bit over time.

🎯 Exam Tip: When discussing money's stability, acknowledge that 'more stable' is a relative term compared to volatile commodities, but it's not absolutely fixed.

Question 8. Write two characteristics of money.
Answer: Two key characteristics of money are:
1. It has the quality of universal acceptance: Everyone accepts money as payment.
2. It is the most liquid form of property: Money can be easily used to buy anything quickly.
In simple words: Money is accepted by everyone and is the easiest thing to use for buying stuff.

🎯 Exam Tip: Focus on universal acceptability and liquidity as core characteristics that enable money to perform its functions effectively.

Question 9. What is the reason of money's birth ?
Answer: Money was invented to solve the problems and difficulties faced by the barter system, such as the need for double coincidence of wants and the difficulty in measuring value. Money made exchange much simpler and more efficient.
In simple words: Money came about to fix the problems that the old barter system had.

🎯 Exam Tip: The emergence of money is directly linked to the inefficiencies of the barter system. Frame your answer around money as a solution to those problems.

Question 10. What do you mean by M₁ ?
Answer: M₁ is a measure of the money supply that includes:
\( M₁ = C + DD + OD \)
Where:
C = Currency notes and coins held by people
DD = Demand deposits (money in bank accounts that can be withdrawn anytime)
OD = Other deposits with the Reserve Bank of India
In simple words: M1 is a way to count the total money in an economy, including cash people have, money in their checking accounts, and other deposits with the central bank.

🎯 Exam Tip: Accurately recall the components of M1, M2, M3, and M4, and understand what each component represents in terms of liquidity.

Question 11. What do you mean by M2?
Answer: M2 is another measure of money supply that includes M₁ plus additional components. It is calculated as:
\( M2 = M₁ + \text{Post Office savings deposits and deposits in saving accounts in banks.} \)
In simple words: M2 counts all of M1 money, plus money saved in post office accounts and bank savings accounts.

🎯 Exam Tip: Remember that M2 is a broader measure of money supply than M1, incorporating slightly less liquid forms of money like savings deposits.

Question 12. What do you mean by M3 ?
Answer: M3 is a measure of money supply that includes M₁ plus time deposits. It is calculated as:
\( M3 = M₁ + \text{Time deposits of all commercial and cooperative banks} \)
Time deposits are funds held for a fixed period and cannot be withdrawn on demand.
In simple words: M3 includes all of M1 money, plus money kept in fixed deposits in banks, which cannot be taken out instantly.

🎯 Exam Tip: Understand that M3 is an even broader measure of money supply than M2, incorporating fixed deposits which represent longer-term savings.

Question 14. "Money is one thing that possesses general acceptability.” Which economist gave this definition?
Answer: This definition was given by economist Seligman.
In simple words: The economist Seligman said that money is unique because everyone accepts it.

🎯 Exam Tip: Be familiar with key definitions of money and the economists associated with them, as these are common factual questions.

Question 15. State the definition given by Hartley Withers.
Answer: According to Hartley Withers, "Money is that commodity through which we sell and purchase goods." This definition highlights money's role as a medium of exchange.
In simple words: Hartley Withers said money is the item we use to buy and sell things.

🎯 Exam Tip: When quoting definitions, ensure accuracy and, if possible, mention the core aspect the economist emphasized.

Question 16. What is the Knapp's definition of money ?
Answer: Knapp defined money as, "Anything which is declared by the state as money, becomes money.” This means money's value comes from government decree.
In simple words: Knapp said that whatever the government declares as money, becomes money.

🎯 Exam Tip: Knapp's definition emphasizes the legal or fiat aspect of money, where its value is backed by government authority rather than intrinsic worth.

Question 17. What are the drawbacks of a moneyless economy?
Answer: A moneyless economy has all the same drawbacks as the barter system. These include problems like needing a double coincidence of wants, difficulty in measuring value, challenges in storing wealth, and issues with dividing goods for trade.
In simple words: An economy without money suffers from all the problems of the old barter system.

🎯 Exam Tip: To answer this, simply recall and list the fundamental problems of the barter system, as a moneyless economy inherently operates on barter principles.

Question 18. What kinds of measures does RBI adopt in supply of money in the economy?
Answer: The Reserve Bank of India (RBI) uses four main measures to calculate the money supply in the economy: M1, M2, M3, and M4. These measures help understand the total amount of money circulating.
In simple words: The RBI measures how much money is in the economy using four different scales: M1, M2, M3, and M4.

🎯 Exam Tip: Remember the four aggregates (M1-M4) of money supply defined by the RBI, which are crucial for monetary policy analysis.

Question 19. What are demand deposits ?
Answer: Demand deposits are those deposits in banks that must be returned to the depositors whenever they ask for it. These can be withdrawn at any time using cheques, ATMs, or other methods.
In simple words: Demand deposits are bank funds that you can take out anytime you want, like from a checking account.

🎯 Exam Tip: The key feature of demand deposits is their liquidity – they can be accessed instantly by the depositor.

Question 21. What is the reason of extinction of barter system?
Answer: The barter system became difficult to use as people's needs grew and they needed to exchange more goods. Many problems appeared with this system, making it inefficient. Because of these difficulties, the barter system was eventually replaced.
In simple words: As people's needs became more complex, the old barter system became too difficult to use and was eventually replaced.

🎯 Exam Tip: Focus on the main reasons like increasing wants and inefficiencies as key factors for the decline of the barter system.

Question 22. How does money make saving possible?
Answer: Money makes saving easy because its value stays steady and reliable over time. Unlike goods that can spoil or lose value, money can be kept for future use without much change in its buying power.
In simple words: Money makes saving simple because its value remains stable and reliable over time.

🎯 Exam Tip: Emphasize money's stability and durability as the key factors for enabling effective savings, unlike perishable goods in barter.

Question 23. Moneta is a word of which language?
Answer: The word 'Moneta' comes from the Latin language.
In simple words: 'Moneta' is a word from Latin.

🎯 Exam Tip: Remember that many economic terms have historical roots, often from ancient languages like Latin.

Question 24. How is money the basis of market system?
Answer: Money is the simplest way to exchange goods and services in an economy. This means all buying and selling activities, or transactions, in a market rely on money. It serves as a common medium that everyone accepts.
In simple words: Money is the easiest way to trade things, so all buying and selling in a market uses money.

🎯 Exam Tip: Highlight money's role as a universally accepted medium that enables all transactions, making it foundational for any market system.

Question 25. Why do economists advise to control the flow of money in market?
Answer: Economists suggest controlling how much money moves in the market because too much money can cause inflation. Inflation makes prices go up, which harms the general public. Therefore, managing the money supply is very important for a stable economy.
In simple words: Economists say to control money flow to prevent inflation, which causes prices to rise and hurts people.

🎯 Exam Tip: Connect uncontrolled money flow directly to inflation as a key economic problem that necessitates monetary control.

Question 26. How does demonetization remove black money from the economy?
Answer: Demonetization removes black money by making old currency notes invalid. People who hide black money often keep it in cash. When these notes are cancelled, their hidden money loses value. This forces them to declare it or lose its worth, bringing hidden wealth into the official economy.
In simple words: Demonetization cancels old money, making hidden cash (black money) worthless unless it's declared, thus pulling it into the open economy.

🎯 Exam Tip: Remember that demonetization aims to curb illegal money, reduce corruption, and promote cashless transactions by making undeclared cash unusable.

Question 28. What are the secondary functions of money?
Answer: Secondary functions of money are those roles that help money perform its main functions, making it more useful. These are also known as auxiliary functions.
In simple words: Secondary functions are the supporting roles money plays to help its main jobs.

🎯 Exam Tip: Distinguish primary (medium of exchange, measure of value) from secondary functions (like store of value, standard of deferred payments, transfer of value).

Question 29. Why is money considered an important invention?
Answer: Money is seen as an important invention because it made buying and selling goods and services much simpler. It solved many problems of the barter system, making trade efficient and easy.
In simple words: Money is important because it made buying and selling much easier than before.

🎯 Exam Tip: Focus on how money solved the problems of the barter system, especially by making exchange universally accepted and efficient.

Question 30. Write two benefits of money?
Answer: Here are two benefits of money:
(i) Money makes the process of buying and selling goods and services much easier.
(ii) Money helps to easily decide and measure the value of different items.
In simple words: Money makes trading easy and helps us know the worth of things.

🎯 Exam Tip: Remember money's key benefits are simplifying exchange and providing a common measure of value, which are essential for economic activity.

RBSE Class 12 Economics Chapter 17 Short Answer Type Questions (SA-I)

Question 1. Write the important things required for exchange in barter system.
Answer: For the barter system to work, a few things are needed:
1. There must be at least two people involved in the trade.
2. Each person needs to have extra goods that the other person wants.
3. Both people must agree to trade their specific goods with each other.
In simple words: For barter, you need two people, each with extra goods the other wants, and both must agree to trade.

🎯 Exam Tip: List the key conditions: two parties, surplus goods, and mutual agreement for a successful barter transaction.

Question 2. Write two drawbacks of barter system.
Answer: Here are two problems with the barter system:
(i) **Problem of double coincidence of wants:** This means that for a trade to happen, both people must have exactly what the other person wants to trade. Finding such a perfect match is very hard and time-consuming.
(ii) **Difficulty in value estimation:** It was hard to decide how much of one item was worth in exchange for another. For example, how many chickens for one bag of rice? This made fair trading difficult and led to disagreements.
In simple words: Two main problems with barter were finding people who wanted exactly what you had, and deciding how much one item was worth compared to another.

🎯 Exam Tip: Focus on the difficulty of finding matching wants and setting a fair exchange rate as the primary disadvantages of barter.

Question 4. What is the reason of popularity of barter system in ancient time?
Answer: The barter system was popular in ancient times for a few reasons:
1. People did not have many different wants; their needs were simple and limited.
2. Trading usually happened only in small, local areas, making it easier to find direct exchanges.
3. Society was not very advanced, so complex trading systems were not yet needed.
In simple words: Barter was popular long ago because people had simple needs, traded locally, and society was not complex.

🎯 Exam Tip: Think about the simple conditions of ancient times—limited needs and small communities—that made barter a feasible exchange method.

Question 5. Describe evolution of money.
Answer: In olden times, kings and rulers made their own coins. People used these coins, which were made from various metals like gold, silver, copper, and bronze, to trade goods. The government made these coins official and legal, so everyone had to accept them for transactions. Over time, the designs and forms of these coins changed and improved.
In simple words: Money evolved from early coins made of metals by rulers, which were then made official and used for trade, changing over time.

🎯 Exam Tip: Trace the progression from simple metal coins to their legal acceptance by the state, indicating money's increasing role in the economy.

Question 6. Define Money.
Answer: There isn't one single definition of money that everyone agrees on. Economists have different ideas. Hartley Withers said money is simply what we use to buy and sell things. Kinley defined money as a special item that is commonly used and accepted as a way to trade or to measure how much something is worth.
In simple words: Money is generally what we use to buy and sell, or to measure value, though different experts define it in various ways.

🎯 Exam Tip: Understand that while specific definitions vary, money consistently functions as a medium of exchange and a measure of value.

Question 7. What are the measures adopted by RBI for supply of money?
Answer: The Reserve Bank of India (RBI) measures the money supply in the economy using different categories: M1, M2, M3, and M4. These measures include the currency held by people, demand deposits in banks, and other deposits with the RBI. For example, M1 is calculated as Currency (C) plus Demand Deposits (DD) plus Other Deposits (OD) with RBI. DD refers to demand deposits with commercial and cooperative banks, and OD refers to other deposits with RBI.
In simple words: The RBI uses different ways (M1, M2, M3, M4) to count how much money is in the economy, including cash with people and bank deposits.

🎯 Exam Tip: Know the different measures of money supply (M1, M2, M3, M4) and what each component signifies, especially for M1.

Question 8. Write down the primary functions of money.
Answer: Money performs two main primary functions:
1. **Medium of exchange:** Money is generally accepted by everyone for buying and selling things. It makes trading in the market simple and smooth.
2. **Measure of Value:** Money helps us set and determine the price of goods and services. When things have a clear value measured in money, it makes trading them easy.
In simple words: Money's two main jobs are to be used for buying and selling things, and to show how much something is worth.

🎯 Exam Tip: Remember the two primary functions of money: facilitating exchange (medium) and providing a common unit of value (measure).

Question 9. Write down other functions of money.
Answer: Besides its primary and secondary roles, money also has other important functions:
1. **Index of clearance of payment:** Having money shows a person's ability to pay debts. If someone has money, they are considered capable of settling their payments.
2. **Money acts as a bearer of options:** Money gives people choices. It allows a person to make economic decisions according to their wishes, helping them fulfil desires and invest their wealth in various ways.
In simple words: Money shows if someone can pay their debts, and it gives people choices about how to spend or invest their wealth.

🎯 Exam Tip: Understand how money indicates solvency (ability to pay) and provides economic flexibility and choice in resource allocation.

Question 10. State the advantages of money in brief.
Answer: Here are some brief advantages of money:
1. Money is central to how market systems work; the entire study of economics often revolves around its role.
2. Money has made possible the division of labour and specialization in the field of production.
3. Money overcomes the problem where both sides of a trade need to want exactly what the other has (double coincidence of wants).
4. The value of any goods or services can be measured accurately through money.
5. Purchasing power can easily be saved and collected for future use through money.
In simple words: Money helps markets work, allows people to specialize, solves old trading problems, measures value, and makes saving easy.

🎯 Exam Tip: Understand money's foundational role in economic theory, its practical benefits like enabling specialization, solving barter system problems, measuring value, and facilitating savings.

Question 12. Money is the basis of deferred payments. What is implied by this statement?
Answer: This statement implies that money's value usually stays stable over time. Because of this stability, sellers are happy to accept payments for goods or services at a later date. Money makes it easy to make payments for things in the future, forming the foundation for credit transactions.
In simple words: This means money's steady value allows people to agree to pay for things later, making credit possible.

🎯 Exam Tip: Explain that money's stable value is crucial for future transactions and the smooth functioning of credit systems.

Question 13. Define term deposits.
Answer: Term deposits are amounts of money placed in banks for a definite or fixed period of time. For example, depositing a certain amount for one or two years. The bank gives a receipt against this deposited amount, which is called a term-deposit receipt.
In simple words: Term deposits are money saved in a bank for a set time, and you get a receipt for it.

🎯 Exam Tip: Remember that term deposits involve a fixed deposit period and a corresponding bank receipt as proof.

Question 14. Write two advantages of demonetization.
Answer: Here are two advantages of demonetization:
1. **Eradication of black money:** It helps remove undeclared or illegal money from the economy.
2. **Prevention of fake currency and terrorist activities:** It helps stop the circulation of fake currency and disrupts funding for illegal and terrorist activities.
In simple words: Demonetization helps get rid of black money and stops the use of fake currency and funds for illegal acts.

🎯 Exam Tip: List the key goals of demonetization: removing black money and tackling counterfeit currency or financing for illicit activities.

Question 15. "Money is a good servant but a bad mistress”. Explain the statement.
Answer: This saying means money is useful when it helps us manage financial work easily. In this sense, it serves us well. However, if money is used excessively or its flow is not controlled, it can cause inflation, leading to higher prices. This creates serious problems for the general public, making money a "bad mistress" when it becomes uncontrollable.
In simple words: Money is helpful for managing finances, but if not controlled, it can cause inflation and problems for people.

🎯 Exam Tip: Explain the dual nature of money: helpful when managed (servant) and harmful when misused or uncontrolled, leading to inflation (mistress).

Question 16. What is the importance of money in politics?
Answer: Money is important in politics because governments use it to plan and carry out projects for economic development in the country. Money also allows countries to compare their economic progress and achievements with other nations. Without money, managing state affairs and development programs would be very difficult.
In simple words: In politics, money helps governments plan development, manage programs, and compare economic growth with other countries.

🎯 Exam Tip: Focus on money's crucial role in government planning, implementing development programs, and facilitating economic comparisons between nations.

Question 17. What is the importance of money in production sector?
Answer: Money is very important in the production sector. It simplifies the entire production process. With money, businesses can easily buy different resources needed for production. Money also helps measure how much it costs to make a product. Because of money, workers can specialize in tasks (division of labour), and large-scale production becomes possible.
In simple words: Money helps make production simple by letting businesses buy resources, measure costs, allow workers to specialize, and enable large-scale manufacturing.

🎯 Exam Tip: Highlight how money enables resource acquisition, cost calculation, division of labor, specialization, and large-scale production, all vital for economic efficiency.

Question 18. What is the importance of money in a planned economy?
Answer: In a planned economy, money is essential. When a country plans for economic development, it needs financial resources to spend on various development programs. These plans cannot happen without money. Therefore, money plays a vital role in carrying out and achieving the goals of a planned economy.
In simple words: Money is vital in a planned economy because it provides the funds needed to carry out all the development projects and plans.

🎯 Exam Tip: Emphasize that money provides the necessary financial resources for implementing and sustaining economic development plans in a controlled economy.

Question 19. 'Money is the pivot of market system'. Explain this statement in brief.
Answer: This statement means money is the central point around which any market system revolves. It is the easiest and most widely accepted way to exchange things in an economy. Since all buying and selling transactions are made with the help of money, it is considered the core or "pivot" of the market system.
In simple words: This means money is the central part of any market, because it's the simplest and most common way to buy and sell everything.

🎯 Exam Tip: Reinforce money's role as the central medium that facilitates all market transactions and makes trade efficient.

Question 20. How has money made savings possible?
Answer: In the old barter system, people saved goods, but these often spoiled, got lost, or were hard to store. Money solved this problem because its value is stable and it does not perish. People can now save money easily, keep it for a long time, and even deposit it in banks to earn interest, making savings much more practical and secure.
In simple words: Money made saving possible because its value is stable and it doesn't spoil, unlike goods in the old barter system, plus it can earn interest in banks.

🎯 Exam Tip: Contrast saving in a barter system (perishable goods, storage issues) with saving in money (stable, durable, interest-earning, secure).

RBSE Class 12 Economics Chapter 17 Short Answer Type Questions (SA-II)

Question 1. Explain two problems of barter system in detail.
Answer: Here are two detailed problems of the barter system:
(i) **Problem of double coincidence of wants:** This means that for a trade to happen, the person selling must want exactly what the buyer has, and the buyer must want exactly what the seller has. Finding such a perfect match of needs is very difficult and time-consuming in real life.
(ii) **Difficulty in value estimation:** Even if two people found a match, it was often hard to agree on how much of one good was truly worth in exchange for another. For example, how many baskets of fruit would be equal to one tool? This made fair trading very difficult and often led to disagreements.
In simple words: Barter faced problems like finding someone who had exactly what you wanted and wanted exactly what you had, and difficulty in agreeing on how much one item was worth compared to another.

🎯 Exam Tip: Explain both "double coincidence of wants" and "difficulty in measuring value" with simple examples to illustrate the inefficiencies of barter.

Question 2. Mention two contingent functions of money.
Answer: Here are two contingent functions of money:
(i) **Distribution of social income:** Money helps to fairly distribute income among different parts of production, like workers and landowners, especially in industries that involve collective efforts.
(ii) **Basis of credit:** Money is the foundation of the credit system. Things like loans and checks work because money exists. For example, you can only use a check if you have money in your bank account.
In simple words: Money helps share income fairly in society and forms the base for all credit systems, like loans and checks.

🎯 Exam Tip: Focus on money's crucial role in ensuring fair income distribution and as the bedrock for the entire credit and banking system.

Question 3. Mention importance of money in social sector.
Answer: Money is very important in the social sector. It has made big industries and trade possible, which then helped people live better lives and raised the standard of living. Money also allows us to measure social progress and development. Things like education, health, and social welfare programs run by the government are all possible because of money. Therefore, money plays a very important role in improving society.
In simple words: Money helps society by supporting industries, improving living standards, funding education and health, and enabling government welfare programs.

🎯 Exam Tip: Connect money's importance to industrial growth, improved living standards, and the funding of crucial social welfare initiatives and development.

Question 4. Mention the importance of money in revenue sector.
Answer: Money is crucial in the revenue sector. Governments worldwide create yearly budgets, and these budgets are prepared using monetary units. They set incomes and spending in monetary terms. Money helps determine and collect taxes, and it also allows governments to divide expenses for various schemes and programs, such as social security and welfare. The ability to manage these expenses effectively relies entirely on money.
In simple words: Money is key for governments to make budgets, collect taxes, and pay for all their programs like social security and welfare.

🎯 Exam Tip: Emphasize money's essential role in government budgeting, tax collection, and allocating funds for public services and welfare programs.

RBSE Class 12 Economics Chapter 17 Essay Type Questions

Question 1. Describe Secondary and Contingent functions of money.
Answer:
(A) **Secondary Functions of Money:** These functions help money perform its primary roles and are:
(i) **Standard of deferred payment:** Money acts as a standard for payments that will be made in the future. Many transactions today involve future payments, and money makes this possible because its value is generally stable.
(ii) **Store of Value:** Money allows people to save their buying power for future use. It is an economical and convenient way to store wealth because, unlike many goods, money does not spoil and is widely accepted.
(iii) **Transfer of Value:** Money makes it easy to transfer buying power from one place to another, or from one person to another. For example, a person can sell property in one city and use the money to buy property in another city without financial loss.
(B) **Contingent Functions of Money:** These functions make money even more useful and convenient:
(i) **Basis of credit:** Money is the foundation for the entire credit system. It enables banks to give loans and people to engage in credit transactions, as checks and other credit instruments are based on the availability of money.
(ii) **Liquidity of Property:** Money provides liquidity to capital or wealth. This means assets can be easily converted into cash, allowing them to be used immediately for any purpose. A person can quickly sell assets for money and use that money elsewhere.
In simple words: Secondary functions include money being used for future payments, as a way to store wealth, and for easily moving buying power. Contingent functions include money creating the credit system and making wealth easy to access and use (liquid).

🎯 Exam Tip: Clearly define and differentiate between the various secondary functions (e.g., deferred payment, store of value, transfer of value) and contingent functions (e.g., credit basis, liquidity), providing simple explanations for each.

Question 2. Describe the problems of barter system. How does money overcome these problems of barter system?
Answer: **Problems of barter system:**
(i) **Problem of double coincidence of wants:** For a barter trade to happen, both people must want exactly what the other person has to offer. Finding such a perfect match is very difficult and time-consuming.
(ii) **Difficulty in value measurement:** There was no common way to measure the value of goods. It was hard to decide how much of one item was worth in exchange for another, leading to disagreements.
(iii) **Difficulty in storage of value:** Many goods spoil easily or can be stolen, making it hard to save wealth for the future. Storing them also required a lot of space.
(iv) **Problem of divisibility:** Some items cannot be divided without losing their value or utility. This made trading large items for smaller, multiple items very difficult.
(v) **Difficulty in deferred payment:** It was hard to make credit deals because future prices of goods were uncertain, which limited business and long-term agreements.

**Resolution of Drawbacks of Barter System through Money:**
(i) **Medium of exchange:** Money serves as a universally accepted medium of exchange. This means people can sell their goods for money and then use that money to buy whatever they need, solving the problem of double coincidence of wants.
(ii) **Measure of value:** Money provides a common unit to measure the value of all goods and services. This makes it easy to set prices, compare items, and conduct fair transactions, overcoming the difficulty of valuing goods in the barter system.
In simple words: Barter had problems like needing both traders to want each other's goods, difficulty in valuing items, trouble saving perishable goods, and problems dividing large items. Money solved these by being a common way to exchange things and a standard way to measure value.

🎯 Exam Tip: Explain each problem of barter clearly and then show how money, by acting as a medium of exchange and a measure of value, effectively provides solutions to these challenges.