---
type: "Chapter"
knowledge_type: "chapter"
entity_type: "chapter"
id: "66defacd3f8b4e9e69bdc7fb"
title: "Money And Banking"
board: "CBSE"
curriculum: "CBSE"
class: "Class 12"
subject: "Economics"
book: "Introductory Macroeconomics"
chapter: "Money And Banking"
chapter_slug: "money-and-banking"
canonical_url: "https://www.edzy.ai/cbse-class-12-economics-introductory-macroeconomics-money-and-banking"
markdown_url: "https://www.edzy.ai/okf/chapter/cbse-class-12-economics-introductory-macroeconomics-money-and-banking.md"
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source: "Edzy"
version: 1
last_updated: "2026-06-20"
---

# Money And Banking
Money is the commonly accepted medium of exchange that facilitates transactions between economic agents in a market. Its role is pivotal in an economy that includes multiple individuals engaging in exchanges.

---

## Knowledge Snapshot

| Field | Details |
| :--- | :--- |
| Class | Class 12 |
| Subject | Economics |
| Book | Introductory Macroeconomics |
| Chapter | Money And Banking |
| Pages | 36-52 |

---

## Chapter Summary

### Short Summary
Money serves as a medium of exchange that simplifies transactions and acts as a store of value, allowing individuals to conduct economic activities efficiently.

### Detailed Summary
In a single-individual economy, there is no exchange, and thus no need for money. As soon as multiple individuals begin participating in market transactions, money becomes crucial for facilitating these exchanges, avoiding the inefficiencies of barter. Barter involves a double coincidence of wants, making it inefficient in larger economies. Money provides a solution by acting as an intermediate good. Its main functions include acting as a medium of exchange, a unit of account, and a store of value. Money's value may fluctuate, affecting its efficacy in these roles. Moreover, advancements towards a cashless society are occurring, with government initiatives aimed at improving financial inclusion and promoting digital transactions.

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## Topic-Wise Explanation

### FUNCTIONS OF MONEY
Money serves three primary functions: it acts as a medium of exchange, a unit of account, and a store of value facilitating trade and economic assessments.

### DEMAND FOR MONEY AND SUPPLY OF MONEY
[Omission: Context does not provide specific details on demand and supply of money.]

### MONEY CREATION BY BANKING SYSTEM
[Omission: Context does not provide specifics regarding the money creation process by banking systems.]

### POLICY TOOLS TO CONTROL MONEY SUPPLY
[Omission: Context does not elaborate on policy tools to control money supply.]

---

## Core Ideas

| Idea | Explanation |
| :--- | :--- |
| Role of Money | Money facilitates exchanges between individuals, overcoming the limitations of barter. |

---

## Key Concepts

| Concept | Meaning |
| :--- | :--- |
| Medium of Exchange | A function of money that allows it to facilitate the buying and selling process. |
| Unit of Account | A function that allows goods and services to be priced consistently using money. |
| Store of Value | Money's ability to maintain value over time, unlike perishable goods. |

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## Important Points for Revision

* Money simplifies trade by eliminating barter's inefficiencies.
* It acts as a common unit of account, establishing price equivalencies.
* Money provides a means to store wealth without perishability.
* The stability of money's value is crucial for its function as a store of value.
* Technological advancements are steering economies towards cashless transactions.
* Government reforms in India are promoting financial inclusion and digital payments.

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## Practice Questions

### Short Answer Questions
1. Describe the main functions of money in an economy.
2. Explain why money is considered a better alternative to barter.
3. What role does money play in international trade?
4. How does the value of money fluctuate concerning the price level?
5. What are the advantages of a cashless economy?

### Long Answer Questions
1. Discuss how money overcomes the limitations of the barter system and facilitates economic transactions.
2. Analyze the implications of increased digital transactions on the traditional banking system.
3. Explain the importance of stability in the value of money for it to serve effectively as a store of value.

---

## Source Attribution

| Field | Value |
| :--- | :--- |
| Source | Edzy |
| Reference Type | examSubjectBookChapter |
| Reference ID | 66defacd3f8b4e9e69bdc7fb |
| Canonical URL | https://www.edzy.ai/cbse-class-12-economics-introductory-macroeconomics-money-and-banking |
| Markdown URL | https://www.edzy.ai/okf/chapter/cbse-class-12-economics-introductory-macroeconomics-money-and-banking.md |