1. Define Money.

According to crowther money as anything that is generally acceptable as a means of exchange (that is, as a means of setting debts) and that at the same time acts as a measure and as a store of value.

2. What are the four components of money supply in India?

M₁ = Currency with the public. It includes coins and currency note + Demand deposits of the public M₁ is also known as narrow money.
M₂ = M₁ + Post office savings deposits.
M₃ = M₁ + Time deposit of the public with the banks, M₃ is also known as broad money; and
M₄ = M₃ + Total post office deposits.

3. Define Monetary policy.

Monetary policy is policy that employs the central banks control over the supply and cost of money as an instrument for achieving the objectives of economic policy.

4. What are the instruments of quantitative credit control?

1. Bank rate : The Bank rate is the minimum rate at which the central bank of a country will lend money to all other banks.

2. Variation of cash reserve ratios : The ability of a commercial banks to create credit depends upon its cash reserves. The central bank of a country has the power to vary the cash reserve ratios.

3. Open market operations : In India, the open market operators have been conducted in central Government securities and state government securities. The success of open market operations as a weapon of credit control depends mainly on:

a. the possession by the central bank of adequate volume of securities.

b. the presence of well developed bill market.

c. stability of cash reserve ratio maintained by commercial banks.

5. What is Stagflation?

Stagflation is when the economy experiences stagnant economic growth, high unemployment and high inflation. Its a highly unusual situation because a slow economy usually reduces demand enough to keep prices from rising.

6. Write a note on Reserve money.

Reserve money (RM) may be considered as Government money. Reserve money is the cash held by the public and the banks. It is composed of

C = Currency with the public in circulation.
OD = Other deposits of the public with the RBI (OD) and
CR = Cash reserve of bank. Cash reserves are composed of two parts. They are

1. Cash reserves with banks themselves and
2. Bankers deposits with RBI

Reserve money (RM) = C + OD + CR

7. Describe the functions of money.

   a. Medium of exchange : The most important function of money is that it acts as medium of exchange. Money is accepted freely in exchange for all other good.

   b. Measure of value : Money acts as a common measure of value. It is a unit of account and a standard of measurement.

   c. Store of value : A man who wants to store his wealth in some convenient form will find money admirably suitable for the purpose. It acts as a store of value.

   d. Standard of deferred payments : Money is used as a standard for future (deferred) payments. It forms the basis for credit transactions. Business in modern times is based on credit to a large extent.

8. Define Deflation.

According to crowther deflation as a state in which the value of money is rising that is prices are falling . Deflation is the opposite of inflation.

9. Define Bottle neck inflation.

Bottle neck inflation refers to inflation that results from shortages. Imbalances and rising marginal costs as full employment output is approached.

10. Discuss the quantity theory of money.

The quantity theory of money was formulated by irving fisher. In its original form, the quantity theory states, " prices always change in exact proportion to changes in the quantity of money. If the amount of money is halved, prices fall to half their original level".