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Functions and Types of Money Explained

The document discusses the importance of money in modern civilization, detailing its functions, types, and the role of monetary policy. It outlines the objectives and tools of both monetary and fiscal policy, emphasizing their impact on economic stability and growth. Key tools mentioned include the Cash Reserve Ratio, Repo Rate for monetary policy, and various taxation and spending tools for fiscal policy.

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6 views16 pages

Functions and Types of Money Explained

The document discusses the importance of money in modern civilization, detailing its functions, types, and the role of monetary policy. It outlines the objectives and tools of both monetary and fiscal policy, emphasizing their impact on economic stability and growth. Key tools mentioned include the Cash Reserve Ratio, Repo Rate for monetary policy, and various taxation and spending tools for fiscal policy.

Uploaded by

shahid124work
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MODULE : 5

SUBJECT : PEM
TOPIC : MONEY
TH
SEMESTER : 4

Asst. Prof. Harshil Panchal


Money
◻ Money Is An Important and indispensable element
of modern civilization.
◻ Money is any good that is widely used and
accepted in transactions involving the transfer of
goods and services from one person to another.
Functions Of Money
◻ As A Medium Of Exchange
◻ As A Unit Of Account
◻ As Standard Of Deferred Payments
◻ As Store Of Value
◻ Directs Economic Trends
◻ As Encouragement to division of labour
◻ Smoothens Transformation Of Savings Into
Investments.
Types Of Money
◻ Commercial Money
◻ Commodity Money
◻ Fiat Money
◻ Fiduciary Money
Other Types Of Money
◻ Fractional Money
◻ Representative Money
◻ Coins
◻ Paper Money
Monetary Policy
◻ Monetary Policy is a regulatory policy by which the
central bank or monetary authority of a country
controls the supply of money.
◻ Availability of bank credit card and cost of money,
that is, the rate of interest.
Objectives Of Monetary Policy
◻ Price Stability
◻ Rapid Economic Growth
◻ Balance of Payments Equilibrium
◻ Full Employment
◻ Equal Income Distribution
◻ Exchange Rate Stability
Tools Of Monetary Policy

◻ Control On Supply Of Money


◻ Control on Demand of Money
◻ Managing the Risk In Banking
Tools Of Monetary Policy Used By The
RBI
1. Direct Regulation

◻ Cash Reserve Ratio (CRR)


◻ Statutory Liquidity Ratio (SLR)

2. Indirect Regulation

◻ Repo Rate
◻ Reverse Repo Rate
Fiscal Policy
◻ Fiscal policy is the use of government spending and
taxation to influence the economy.
◻ Governments typically use fiscal policy to promote
strong and sustainable growth and reduce poverty.
◻ The role and objectives of fiscal policy gained
prominence during the recent global economic crisis,
when governments stepped in to support financial
systems, jump-start growth, and mitigate the impact
of the crisis on vulnerable groups.
Objectives Of Fiscal Policy

◻ Mobilization of Resources
◻ Effective allocation of Financial Resources
◻ Attempt to Reduce Inequality
◻ Control the inflation
◻ Employment Generation
◻ Capital Formation
Tools Of Fiscal Policy
1) Revenue Tools

◻ Revenue Tools refer to the taxes collected by the


government in various forms.
◻ The taxes Can be direct or indirect.
◻ Direct Taxes levied on the income or wealth
individuals and firms.
Tools Of Fiscal Policy
2) Spending Tools

◻ Spending Tools refer to increasing or decreasing


government spending/expenditure to influence the
economy.
◻ Government spending can be in the form of current
spending, capital spending and transfer payments.
◻ Current spending includes expenditure on essential
goods and services such as health, education,
defense, etc.
Tools Of Fiscal Policy
2) The Discretionary Fiscal Policy

a) Guide Maps
b) Change In Tax Rates
c) Varying Public Works Expenditure
d) Credit Aids
e) Transfer Payments
Thank You

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