Question

1) Define money, explain the different types of money and discuss the measure of money.

2) Do you think we are better both using smart money (cash less) in today dire time?

Answer 1

Crowther defines money as follows- " Money can be defined as anything that is generally acceptable as a means of exchange and that at the same time acts as a measure and a store of value."

Types of money are:

1. Commodity money- its value is defined by the intrinsic value of the commodity itself

2. Fiat money- it gets its value from government order. Its intrinsic value is less than its face value. It is declared legal tender and has to be accepted under law.

3. Fiduciary money- Its value depends on the confidence that it will be generally accepted as a medium of exchange. The person issuing it is promising to exchange it for commodity or fiat money.

4. Commercial bank money- It is the money created in the process of credit creation in the economy which is stimulated by lending by banks

Measures of money used by the Federal reserve

M1 consists of coins and currency in circulation, checking accounts and traveler's checks.

M2 = M1 + small savings accounts, funds in money market , small time deposits.

M3= M2 + large time deposits, large money market funds, repurchase agreements (i.e. financial instruments used by businesses and institutions)

Cashless options are proving very beneficial in current times -

• currency notes and coins exchange hands so can prove dangerous in current times of pandemic.
• online payments and card payments allow for no contact home delivery
• easy funds transfer to relatives and friends in need
• account transfer in possible for domestic help who are staying back home and cant come for work
• rush at banks and ATMs can be avoided