Unit- II Money and Banking Class 12

About Course

Economics requires understanding money and banking intricacies.
Money functions as a medium of exchange, unit of account, store of value, and standard of deferred payment.
Money facilitates economic transactions within society.
Money supply is key to economic stability, consisting of public-held currency and net demand deposits in banks.
Commercial banks create money by accepting deposits and giving loans, thus expanding the money supply.
The central bank, like the Reserve Bank of India (RBI), regulates the monetary framework.
Central bank functions include currency issuance, serving as the government’s bank, and acting as the banker’s bank.
Monetary policy tools used by the central bank include:
- Bank Rate
- Cash Reserve Ratio (CRR)
- Statutory Liquidity Ratio (SLR)
- Repo Rate
- Reverse Repo Rate
- Open Market Operations
These tools control credit and manage economic liquidity.
Understanding these mechanisms helps students appreciate the influence of monetary policy on economic conditions.

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