CBSE 2025, Set 2

Question

(a) "In a country, routine economic operations rely on a stable medium, to facilitate transactions for maintaining smooth economic activities."
Discuss briefly the indicated function of money.

(b) State the meaning and components of $M_1$ measure of money supply.

(c) State the formula to compute Credit Multiplier.

Edvaya · Accepted Answer

The correct answer is Subjective. **(a)** The indicated function of money is **'medium of exchange'**. Money acts as a universally acceptable medium for any transaction. Money serves as a medium for buying/selling goods and services. It eliminates the limitation of lack of double coincidence of wants by facilitating exchange in the market. **(b)** $M_1$ measure of money supply refers to the total volume of money held by the public at a particular point of time in the economy. The two components of $M_1$ measure of money supply are: * Currency (notes and coins) held by the public. * Net demand deposits held by commercial banks. **(c)** Formula to compute Credit Multiplier: $	ext{Credit Multiplier} = \frac{1}{	ext{Reserve Ratio (LRR)}}$

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Economics > Introductory Macroeconomics > Money And Banking

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