Question

Explain the Components of money.

Answer 1

The term “money” includes different types of things we use to pay for goods and services. In modern economics, money has several components, which together make up what we call the money supply.

1. Currency: This includes the physical form of money that we use every day.

• Coins: Coins such as ₹1, ₹2, ₹5, and ₹10 are issued by the Government of India and are used as a form of legal tender for everyday transactions.
• Paper Notes: Paper notes such as ₹10, ₹20, ₹50, ₹100, ₹200, ₹500, and ₹2000 are issued by the Reserve Bank of India (RBI) and are considered legal tender, meaning they are accepted by law as a valid form of payment.

2. Demand Deposits:

• These are deposits in banks that you can withdraw anytime using cheques, debit cards, or online transfer.
• No need to give prior notice to the bank.
• Example: Your savings or current account balance.

3. Near Money: These are not actual money, but can be quickly converted into cash. For example, Fixed deposits, Post office savings, and Treasury bills. They are called “near money” because they are not used directly for buying things, but can be turned into money easily.