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Money.

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Presentation on theme: "Money."— Presentation transcript:

1 Money

2 Money “Conceptually money can be defined as any commodity that is generally accepted as a medium of exchange and a measure of value” The Conventional approach The Chicago approach The Gurely-Shaw approach The Central Bank approach

3 The Kinds of Money Commodity money Metallic money Paper money
Bank money Plastic money Invisible money

4 The Functions of Money Money as a medium of exchange
Money as a measure of value Money as a store of value Money as a standard of deferred payments

5 Significance of Money Money eliminates the problems of the barter system Money works a factor of production Money accelerate the pace of production and growth Money is life blood of modern economy Money contributes in many other ways – consumer choice, money market, efficient allocation of resources

6 The Source of Money Supply
The central bank and high power money Commercial bank and money creation Non banking financial intermediaries and money supply

7 Measure of money supply in India
M1 = C + DD + OD M2 = M1 + Savings deposits with post office M3 = M1 + Net time deposits with commercial banks M4 = M3 + Total deposits with post office (including NSC)

8 Money Multiplier The money multiplier is the amount of money that banks generate with each dollar of reserves. Reserves is the amount of deposits that the Reserve Bank requires banks to hold and not lend. 

9 Credit Creation Process

10 Monetary Policy

11 Monetary Policy Monetary policy is essentially a program of action undertaken by the monetary authorities, generally the central bank to control and regulate the supply of money with the public and the flow of credit with a view to achieving predetermined macroeconomic goals

12 Instruments of Monetary Policy
Quantitative Measures Open Market Operations Bank rate/discount rate CRR SLR Qualitative or Selective Credit Controls Credit rationing Change in lending margins Moral suasion Direct control

13 Limitations of Monetary Policy
The time lag – Inside lag and outside lag Problem of forecasting Non baking financial intermediaries Underdeveloped money and capital market

14 Thanks

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