Class 12 Macroeconomics Sandeep Garg Solutions Chapter 5 - Money
FAQs on Sandeep Garg Class 12 Macroeconomics Chapter 5 Solutions
1. How do the Sandeep Garg Class 12 solutions explain the primary functions of money for a board exam answer?
The solutions for Sandeep Garg Chapter 5 structure the answer by breaking it down into four primary functions, which is the correct method for CBSE exams. A complete answer should include:
Medium of Exchange: Explain that money acts as an intermediary for the sale and purchase of goods and services, eliminating the need for a double coincidence of wants.
Measure of Value: Describe how money provides a common unit of account to express the value of all goods and services, making comparisons and calculations easier.
Store of Value: Detail how money allows purchasing power to be saved and stored for future use. Unlike perishable goods in a barter system, money is durable and convenient to store.
Standard of Deferred Payment: Explain that money is used as a standard for payments that are to be made in the future, such as loan repayments, due to its relatively stable value.
For full marks, each point should be explained with a brief one-line example.
2. What is the correct step-by-step method to calculate the M1 measure of money supply using the Sandeep Garg solutions?
To accurately solve numerical problems on money supply as per the CBSE 2025-26 syllabus, the Sandeep Garg solutions guide a clear step-by-step method. The process is as follows:
Step 1: Identify the Components. From the question, find the values for 'Currency and coins with the Public' (CU) and 'Net Demand Deposits of commercial banks' (DD).
Step 2: State the Formula. Write down the correct formula for the M1 measure of money supply: M1 = CU + DD.
Step 3: Substitute and Calculate. Place the identified values into the formula and perform the calculation.
Step 4: Conclude the Answer. State the final result clearly with the appropriate currency unit (e.g., ₹ crores). It is crucial to only include components held by the public.
3. How should one solve a question on the limitations of the barter system, specifically the 'lack of double coincidence of wants'?
Following the methodology in the solutions, the correct way to structure this answer is to first define the core concepts and then provide a clear example. The steps are:
Define the Barter System: Start by explaining that it is a system of exchange where goods are directly exchanged for other goods without the use of money.
Explain 'Double Coincidence of Wants': Describe this as a situation where two individuals each have a good that the other wants. This simultaneous fulfilment of mutual wants is essential for a barter exchange to occur.
Illustrate the Limitation: Provide a simple, practical example. For instance, a farmer with wheat who wants cloth must find a weaver who not only has cloth but also desires wheat in exchange. The difficulty in finding such a match is the primary limitation.
4. What is a common mistake students make when solving for money supply, and how do the solutions help prevent it?
A very common error is incorrectly defining the 'public' and 'deposits' components. Students often include inter-bank deposits (deposits held by one commercial bank with another) or cash reserves held by the commercial banks themselves in the calculation. The Sandeep Garg solutions clarify that the M1 measure of money supply only includes currency and demand deposits held by the consuming public and firms. It explicitly excludes the money held by the government and the banking system, as they are producers or suppliers of money, not the public holding it for transactions.
5. Why are 'demand deposits' included in the M1 money supply calculation, but 'time deposits' are not?
The core reason, as clarified in the solutions for Chapter 5, lies in the concept of liquidity. Demand deposits (like current and savings account balances) are considered part of the money supply because they are chequable and can be withdrawn on demand to make payments, making them a direct medium of exchange. In contrast, time deposits (like Fixed Deposits or FDs) have a fixed maturity period and cannot be used for transactions directly. They must first be converted into cash or a demand deposit, and often involve a penalty for premature withdrawal, hence they lack the required liquidity to be included in M1.
6. How do the Sandeep Garg solutions distinguish between 'Money' and 'High-Powered Money' when solving problems?
The solutions help clarify this fundamental distinction to avoid errors in problem-solving. 'Money' (specifically M1) refers to the total currency and demand deposits held by the public for transactions (M = CU + DD). It represents the purchasing power in the hands of the people. In contrast, 'High-Powered Money' (H) is the base money, or the total liability of the monetary authority (the Central Bank). It consists of currency held by the public (CU) and the cash reserves held by commercial banks (R). So, H = CU + R. The key takeaway is that High-Powered Money is the foundation upon which the banking system creates the total money supply.
7. In the context of the solutions for Chapter 5, how does money's function as a 'standard for deferred payment' solve a critical problem of the barter system?
The barter system faced a critical problem with future contracts or credit transactions. It was difficult to agree on the quality and specific type of good to be repaid in the future (e.g., repaying a loan of wheat after a year). The quality could degrade, or its value could fluctuate wildly. The solutions explain that money solves this by providing a stable and universally accepted unit of account. Because money's value is generally stable and it is legally recognised, it serves as a reliable standard for making payments at a future date, making lending, borrowing, and other credit-based economic activities possible and efficient.
