NCERT Class 10 Economics Chapter 3: Money & Credit Complete Notes Part 1

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Money & Credit

Money Versus Barter

  • Barter System – Double coincidence of wants

  • Money – eliminates double coincidence of wants; Medium of EXCHANGE

So let’s understand what money is and how it evolved? Previously, there was no currency and no money in circulation, the only means of trade was exchange. That exchange is in from of barter system that means the person A grows the vegetables and fruits, so he is farmer and Person B is Poultry worker, so he working in poultry farm. A would provide vegetables and fruit to B in exchange of this he returns some kind of poultry to A, so that was kind of exchange, and this exchange is known as barter system.

Image of Money versus Barter

Image of Money Versus Barter

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Barter system is basically talked about Double coincidence of wants. There is wants that is a rising from A and that is rising from B both of this wants match what they minutely provide to one and another, if the Person B is looking for fruits, he exchanges but person A is not looking for chickens, that means person is only providing to person B, and there is no double coincidence of wants. As a result what he will do in lieu of what he sold, he will take some amount and that is what we call as money. Money is in simple term a medium of exchange.

Forms of Money

  • Currency: Paper notes and coins – authorized by Govt. (India – RBI)

  • Deposit with Banks – to earn interest for extra money; demand deposit (withdrawn on demand) – Cheque rather than Cash

Image of Cheque

Image of Cheque

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Now what are the various forms of the money, there could be two primary forms of money, third was talk about, we will see how it evolved in recent days.

Now first one money is the forms of cash, so any paper notes, coins that is in circulation would be known as currency. This issued only by an authorized organization, now let’s say if I bring a currency circulation I cannot do so but for a country like India, it is RBI that does so. That is Reserve Bank of India (RBI).

The next form is deposits with banks, now let’s say I’m earning Rs. 10,000 thousands and I have Rs. 1000 extra that I have saved, now that extra saving I putting in the bank and on this what I deposit in the bank I will get certain interest. Let’s say I keep this money in my saving account for 1 year, so I’m keeping the money for 1 year I would be getting some kind of interest. Deposits with the bank can be in various forms. First is demand deposits and this demand deposits withdrawal on demand, for example Cheque, cheque is instrument which is a kind of demand deposits and this is example of cheque where you pay it to someone like XYZ and given amount say one thousand and that is how you work around. It’s not a physical money that you have in hand but it’s a kind of money transferred from one account to another and that is what is known as deposits with bank.

Recently, trend of digital economics, through internet banking or e-banking is getting momentum. All this kind of digital transactions are now common and the cheque is still not out dated and you have net banking, that is come in to way or you have banking through wallet so all this are the recent example of deposits. Now what is different between depositor and borrower?