Maharashtra Board Class 11 Economics Important Questions Chapter 2 Money

Balbharti Maharashtra State Board Class 11 Economics Important Questions Chapter 2 Money Important Questions and Answers.

Maharashtra State Board 11th Economics Important Questions Chapter 2 Money

1A. Choose the correct option:

Question 1.
Qualities of Money
(a) General Acceptability
(b) Durability
(c) Non-divisibility
(d) Portability
Options:
(1) a, c, d
(2) a, b, c
(3) a, b, d
(4) b, c, d
Answer:
(3) a, b, d

Question 2.
Difficulties in Barter System
(a) Problem of Double coincidence of wants
(b) Lack of common measure of value
(c) Difficulties in the storage of goods
(d) Divisibility of goods possible
Options:
(1) b, c, d
(2) a, b, c
(3) a, b, c, d
(4) a, b, d
Answer:
(2) a, b, c

Question 3.
Statement related to Barter System
(a) Exchange of goods for goods
(b) Mobile Phone, Tablet, Smart Cards, Digital Wallet
(c) Problem of deferred payments
(d) Lack of common measure of value
Options:
(1) a, c, d
(2) a, b, c
(3) b, c, d
(4) b, d
Answer:
(1) a, c, d

Question 4.
Statement not related to Standard coins
(a) Face value greater than the intrinsic value
(b) It is also called as full-bodied coins
(c) It is made of gold or silver
(d) Face value is equal to intrinsic value
Options:
(1) a, b, c
(2) b, c
(3) a, b, d
(4) b, c, d
Answer:
(4) b, c, d

Question 5.
Not a Commodity money
(a) Feathers
(b) Tusk
(c) Aluminium
(d) Animal skin
Options:
(1) b, a
(2) c, d
(3) c
(4) a, c
Answer:
(3) c

Question 6.
Features of non-legal tender money
(a) No legal compulsion
(b) Cheques, Bill of exchange, etc
(c) Generally, used by people for final payment
(d) It is backed by law
Options:
(1) a, c, d
(2) a, b, c
(3) b, d
(4) b, c, d
Answer:
(2) a, b, c

Question 7.
Secondary functions of money
(a) Standard of Deferred payments
(b) Store of value
(c) Medium of Exchange
(d) Transfer of value
Options:
(1) b, c
(2) a, b, c
(3) a, b, d
(4) b, c, d
Answer:
(3) a, b, d

Question 8.
Contingent functions of money
(a) Imparts liquidity to wealth
(b) Measurement of National Income
(c) Basis of Credit
(d) Estimation of macro-economic variable
Options:
(1) a, b, c
(2) b, c, d
(3) a, c, d
(4) a, b, c, d
Answer:
(4) a, b, c, d

Question 9.
Concept of Black money
(a) Money not accounted for
(b) tax evaded money
(c) encourages bribery, hoarding, etc
(d) discourages illegal activities
Options:
(1) a, d
(2) b, c, d
(3) a, b, c
(4) a, b, d
Answer:
(3) a, b, c

Question 10.
Features of Bank money
(a) Refers to deposits saved by people
(b) Demand draft, cheque, etc
(c) Legal tender money
(d) Nonlegal tender money
Options:
(1) a, b, d
(2) b, c, d
(3) a, c, d
(4) b, d
Answer:
(1) a, b, d

1B. Complete the correlation:

Question 1.
Bills of exchange : Credit money : : Feathers : __________
Answer:
Commodity Money

Question 2.
Primary function of money : Medium of exchange : : __________ : Deferred payment.
Answer:
Secondary functions of money

Question 3.
Commodity money : Metals, Rice : : __________ : Credit card.
Answer:
Plastic money

Question 4.
Standard coins : Gold, silver : : __________ : Cheap metal.
Answer:
Token coins

Question 5.
India : Rupees : : __________ : Dollar.
Answer:
USA

Question 6.
Animal money : Oldest form of money : : __________ : Latest form of money.
Answer:
Electronic money

Question 7.
Currency notes : Unlimited legal tender : : Token coins : __________
Answer:
Limited legal tender

Question 8.
U.K. : Pound : : __________ : Yen
Answer:
Japan

Question 9.
Credit Cards : Plastic Money : : Digital Wallet : __________
Answer:
Electronic money

Question 10.
₹ 1 note : __________ : : ₹ 100 note : Reserve Bank of India.
Answer:
Govt, of India

1C. Suggest the economic terms for the given statements.

Question 1.
A financial institution that accepts deposits of money from the public.
Answer:
Bank

Question 2.
Exchange of goods for goods without the use of money.
Answer:
Barter system

Question 3.
Coins whose face value is higher than their intrinsic value.
Answer:
Token coins

Question 4.
Coins whose face value is equal to their intrinsic value.
Answer:
Standard or Full-bodied coins

Question 5.
Money that is backed by law and cannot be refused in transactions by anybody.
Answer:
Legal tender money

Question 6.
Money is generally used by the people but there is no legal compulsion of accepting it.
Answer:
Nonlegal tender money

Question 7.
Payment to be made at a future date.
Answer:
Deferred payment

Question 8.
Name the function of money when it serves as a medium of exchange and measure of value.
Answer:
Primary functions

Question 9.
Tool to control black money.
Answer:
Demonetization

1D. Arrange in proper order:

Question 1.
Evolution of money
(a) Paper money
(b) Animal money
(c) Plastic money
(d) electronic money
Answer:
b, a, c, d

Question 2.
Function of money
(a) Transfer of value
(b) Medium of exchange
(c) Store of value
(d) Basis of credit
Answer:
b, c, a, d

1E. Find the odd word out.

Question 1.
Definitions of money not given by
(a) Walker
(b) Crowther
(c) Marshall
(d) Seligman
Answer:
(c) Marshall

Question 2.
Not a good quality of money
(a) Homogeneity
(b) Portability
(c) Cognizability
(d) Changing the value of money
Answer:
(d) Changing the value of money

Question 3.
Not a standard of deferred payment
(a) Paper money
(b) Commodity money
(c) Bills of exchange
(d) Demand drafts
Answer:
(b) Commodity money

Question 4.
Not a metallic money
(a) silver
(b) stones
(c) aluminium
(d) nickel
Answer:
(b) stones

1F. Complete the following statements:

Question 1.
Money is anything that is generally accepted as a means of exchange and at the same time __________
Answer:
acts as a measure and store of value

Question 2.
Token coins are those whose face value __________
Answer:
is higher than their intrinsic value

Question 3.
Cow, sheep, horse, etc. used as a means of exchange are __________
Answer:
commodity money

Question 4.
Money that is backed by law and cannot be refused in the transaction are called __________
Answer:
legal tender money

Question 5.
Any two qualities of good money __________
Answer:
recognizability, divisibility

Question 6.
Money used for purchases and transactions globally is __________
Answer:
electronic money

Question 7.
In India, one rupee note and all coins are issued by the __________
Answer:
Government of India

Question 8.
Currency notes of higher denominations are issued by the __________
Answer:
Central Bank (RBI)

Question 9.
Money is a link between __________
Answer:
Present and future

Question 10.
Payments to be made at a future date is called __________
Answer:
deferred payments

Question 11.
In the case of token coins, intrinsic value is __________
Answer:
less than its face value

Question 12.
The most liquid asset is __________
Answer:
money

Question 13.
Introduction of money removed __________
Answer:
the difficulties of the barter system

Question 14.
Money that leads to political, economic and social instability in a country is __________
Answer:
Black money

Question 15.
Bank draft is an example of __________
Answer:
Bank money

Question 16.
In India, paper currency is known as __________
Answer:
Legal tender money

Question 17.
Use of Debit and Credit cards are examples of __________
Answer:
Plastic money

Question 18.
“Money is what money does”, this definition is given by __________
Answer:
Prof. Walker

1G. Choose the wrong pair:

Question 1.

Group ‘A’	Group ‘B’
1. Standard coin	(a) Face value more than the intrinsic value
2. Bills of Exchange	(b) Credit money
3. Black Money	(c) Illegal money

Answer:
Wrong Pair: Standard coin – face value more than intrinsic value.

Question 2.

Group ‘A’	Group ‘B’
1. Commodity money	(a) cow, sheep, horse, etc.
2. Barter System	(b) Double coincidence of wants
3. Electronic money	(c) Gold coins

Answer:
Wrong Pair: Electronic money – Gold coins

Question 3.

Group ‘A’	Group ‘B’
1. Quality of money	(a) Cognizability
2. Secondary function of money	(b) Medium of Exchange
3. Rs. 100	(c) Legal tender money

Answer:
Wrong Pair: Secondary function of money – Medium of Exchange.

1H. Choose the correct option:

Question 1.

Group ‘A’	Group ‘B’
1. Near Money	(a) Seashells
2. Secondary function of money	(b) Double coincidence of wants
3. Commodity money	(c) Bills of Exchange
4. Barter System	(d) Standard of deferred payments
5. Legal tender	(e) Paper money

Options:
(A) 1 – e; 2 – b; 3 – a; 4 – d; 5 – c
(B) 1 – b; 2 – a; 3 – d; 4 – c; 5 – e
(C) 1 – c; 2 – d; 3 – a; 4 – b; 5 – e
(D) 1 – a; 2 – d; 3 – c; 4 – e; 5 – b
Answer:
(C) 1 – c; 2 – d; 3 – a; 4 – b; 5 – e

Question 2.

Group ‘A’	Group ‘B’
1. Token Coin	(a) Credit Money
2. Standard coin	(b) Not steady
3. Money	(c) Medium of Exchange
4. Value of Money	(d) Face value more than intrinsic value
5. Bills of Exchange	(e) Face value equal to intrinsic value

Options:
(A) 1 – a; 2 – b; 3 – c; 4 – e; 5 – d
(B) 1 – d; 2 – e; 3 – c; 4 – b; 5 – a
(C) 1 – c; 2 – e; 3 – d; 4 – a; 5 – b
(D) 1 – e; 2 – c; 3 – b; 4 – a; 5 – d
Answer:
(B) 1 – d; 2 – e; 3 – c; 4 – b; 5 – a

Question 3.

Group ‘A’	Group ‘B’
1. Metallic Coins	(a) Latest development in credit money
2. Commodity Money	(b) Cheques
3. Paper Money	(c) Currency Notes
4. Bank Money	(d) Problem of divisibility
5. Electronic money	(e) Gold coins

Options:
(A) 1 – a; 2 – b; 3 – c; 4 – d; 5 – e
(C) 1 – d; 2 – e; 3 – a; 4 – b; 5 – c
(B) 1 – c; 2 – b; 3 – a; 4 – e; 5 – d
(D) 1 – e; 2 – d; 3 – c; 4 – b; 5 – a.
Answer:
(D) 1 – e; 2 – d; 3 – c; 4 – b; 5 – a

2. Distinguish between:

Question 1.
Barter Economy and Money Economy.
Answer:

Barter Economy	Money Economy
(i) Barter economy is a moneyless economy where goods are exchanged for goods.	(i) Money economy is one where money is commonly used as a medium of exchange.
(ii) In this economy exchange of goods for goods is direct.	(ii) In this economy exchange of goods is indirect i.e. through money.
(iii) Exchange of transactions is few and difficult.	(iii) Exchange of transactions is many and smooth.
(iv) Barter economies are rarely found.	(iv) Almost all economics in the world are money economies.

Question 2.
Metallic Money and Paper Money.
Answer:

Metallic Money	Paper Money
(i) It refers to money which is made of metals like gold, silver, and copper, etc.	(i) It refers to that money which is in form of paper currency notes issued by the Govt, and the Central Bank of the country.
(ii) They are durable.	(ii) They are less durable.
(iii) Metallic money is not easily portable.	(iii) Paper money is more convenient and they are light in weight, so it is portable.
(iv) They are suitable for small transactions.	(iv) They are suitable for larger transactions.
(v) Metallic money was introduced earlier to paper money.	(v) Paper money was subsequently issued after metallic money.
(vi) Metallic money is not economical to produce.	(vi) Paper money is easier and cheaper to print.

Question 3.
Standard Coins and Token Coins.
Answer:

Standard Coins	Token Coins
(i) Standard coins are those coins whose face value is equal to its intrinsic value.	(i) Token coins are those coins whose face value is greater than its intrinsic value or metal value.
(ii) These are made of costly metals like gold, silver, etc.	(ii) These are made of cheap metals like nickel, aluminium, etc.
(iii) Indian rupees during the king’s rule were made of gold, silver, etc.	(iii) In today’s time these are used for making small payments.
(iv) These are rarely used now.	(iv) Token coins in India are ₹ 10, 5, 2, 1.

Question 4.
Legal Tender Money and Non-Legal tender Money.
Answer:

Legal Tender Money	Non-Legal Tender Money
(i) Legal Tender Money is the money that is backed by law and refusal to accept will be punishable by law.	(i) Non-legal tender money is the money that is generally used by people but there is no legal compulsion to accept it.
(ii) It is issued by the Central bank of the country.	(ii) It is issued by commercial banks.
(iii) It is freely accepted as a medium of exchange.	(iii) It is not legal tender money. No one can force you to accept it.
(iv) Currency notes issued by RBI in denominations ₹ 5, 10, 20, 50, 100, 200, 500, 2000 are legal tender money.	(iv) Negotiable instruments such as cheques, bank drafts, bills of exchange are non-legal tender money.

3. Answer the following:

Question 1.
Write any two most commonly accepted definitions of money.
Answer:
Some most commonly accepted definitions are as follows:

• Prof. Walker – “Money is what money does”.
• Prof Crowther – He has given the most acceptable definition. “Money is anything that is generally accepted as a means of exchange and at the same time, acts as a measure and as a store of value”.

Question 2.
What are the qualities of good money?
Answer:
Qualities of good money are as follows:

• General Acceptability: It must be generally accepted as a medium of exchange.
• Stability of Value: The purchasing power of money should be stable because money serves as a store of value.
• Cognizability: It must be easily recognizable or identifiable. For E.g. Notes of different denominations must be of different sizes, colours, etc., so that they can be easily identified.
• Durability: Money should be durable also. Its value should not fluctuate too much.
• Divisibility: Money should be divisible into units of smaller denominations.
• Portability: It should be easy to handle and carry from one place to another.
• Homogeneity: Money of the same denomination should be identical in shape, size, colour, etc.

Question 3.
What is meant by
(i) Black money
(ii) Electronic money
Answer:
(i) Concept of black money: Black money is unaccounted money which is illegally obtained and not declared for tax purposes. It encourages illegal activities, corruption, bribes, etc. This creates an obstacle to economic development.

(ii) Electronic Money: It is also called E-money. It is a monetary value that is stored and transferred electronically through mobile phones or tablets or smart cards or computers. It is backed by Central Bank and is used for purchases and other transactions globally.

Question 4.
What are the advantages of cashless payments or plastic money?
Answer:
Advantages of cashless payments or plastic money:

• It reduces the burden of carrying cash while traveling.
• It is easy to use plastic money like debit cards and credit cards.
• It will restrict the inflow of duplicate money as cash is not used at all.
• Fear of loss of money while traveling will not be there. If the card is lost we can inform our banks and get all transactions stopped.
• Corruption and black money transaction will be controlled as all transactions will be done through banks which will bring transparency to our transactions.
• We also get a credit period if payments are made through credit cards.

4. State with the reasons whether you agree or disagree with the following statements:

Question 1.
Money is the most liquid asset.
Answer:
Yes, I agree with the statement.

• Money is the most liquid asset because it is generally acceptable.
• It is a 100% liquid asset in the sense that it can be converted into any type of asset with no loss in its value
• Money helps to transfer immovable properties like land by selling it at one place and purchasing similar property at another place or from one person to another without any difficulty.
• In other words, it makes illiquid assets like land, buildings, etc., into liquid assets.
• Money as a store of value is also the most liquid asset, as compared to other assets like diamonds, houses, land, etc.

Question 2.
Money has no store of value.
Answer:
No, I do not agree with the statement.

• Money performs an important function as a store of value.
• Although wealth can be stored in a form other than money, money is the most convenient form in which wealth can be stored. Since money is the most liquid asset, it can be used for future use whenever needed.
• Money can be stored without the loss in its value.
• This was not possible under barter exchange because goods could not be stored for a long time and there could be lost in the value of commodities.
• This function of money enables people to save a part of their income and store it for future use.
• Savings lead to capital formation which in turn will lead to the economic development of a country.

Question 3.
There are no disadvantages to paper money.
Answer:
No, I do not agree with the statement.
Although paper money has many advantages and it has economized the use of precious metals it suffers from the following disadvantages:

• The government may over the issue when there is a deficit in the budget and this may lead to inflation.
• It is less durable as compared to metallic money.
• It can be circulated only in the domestic economy, it is not useful for international trade.

Question 4.
Credit Money can be refused.
Answer:
Yes, I agree with the statement.
Credit money can be refused because

• Credit money refers to Bank money.
• Bank money is not legal tender money.
• No one can force to accept this money.
• It is not punishable if it is not accepted.
• Hence, Credit Money can be refused.

Question 5.
Plastic money can play an important role in eradicating corruption in India.
Answer:
Yes, I agree with the statement.
More and more use of plastic money can help in eradicating corruption in India in the following ways:

• Every transaction detail is recorded by the bank when the transaction is done through plastic money.
• None of the money transactions are illegal as these take place through banks.
• At the international level, all the conversion of Indian currency into dollars or Swiss dollars can be recorded with transactions done through plastic money.
• It’s only when transactions take place in cash, bribery and other illegal activities take place.
• But the use of plastic money is easy to use, easy to keep records, and hence will help in removing corruption.

5. Answer in detail:

Question 1.
Define barter system. What are the difficulties faced by people under this system?
Answer:
Barter system refers to the system where goods are exchanged for goods without the use of money. Difficulties of barter system:
(a) Problem of double coincidence of wants: Lack of double coincidence of wants means when two persons may not desire to purchase each other’s goods. For example Mr. A has wheat and wants salt. So Mr. A has to search for Mr. B who wants wheat and has salt, otherwise, the exchange would not be possible.

(b) Lack of common measure of value: In olden times there was no common unit in terms of which the value of goods could be measured.

(c) Indivisibility of certain goods: There was a problem of exchange when a person had large commodities which could not be divided into smaller units Eg. 1 goat = 20 kg rice. If a person wanted 5 kg of rice, the goat could not be cut and exchanged.

(d) Difficulty in the storage of goods: It was necessary to store goods for future use but as most of the things were perishable, it was difficult to store.

(e) Problem of making deferred payments: It means a payment to be made in the future. For E.g. taking a loan and making a payment in the future was not possible in the barter system. So, to overcome these difficulties of the barter system, people invented some other kind of money.

Question 2.
What are the different stages in the evolution of money? Or Explain the different types of money.
Answer:
The evolution of money has passed through various stages with the development of civilization.
Following are the various stages of money which evolved gradually with the need and time:
(a) Animal money: In the primitive age (prehistoric period) animals like cows, goats, sheep, etc. were used as a common medium of exchange. In hot climatic countries cow, ox, etc. were chosen as a medium of exchange.

(b) Commodity money: In certain countries, commodities like shells, wheat, rice, tobacco, wool, fur, salt, etc. were used as money. In cold countries, skin and fur were used as a medium of exchange. But due to the lack of uniformity and storage, metallic money was evolved.

(c) Metallic money: With the progress of civilization, precious metals like gold and silver came into use as money. Initially, metallic money was imperfect in size, shape, weight, etc. But the scarcity of precious metals gave rise to the of use of metallic coins.

(d) Metallic coins: Use of metals led to the introduction of coins. Rulers in olden times affixed their seal on metallic money. These coins were of two types.

• Standard or full-bodied coins : Coins for which the face value is equal to its intrinsic (metal) value are known as standard or full-bodied coins. E.g. gold and silver coins.
• Token coins: Coins for which the face value is greater than intrinsic value are known as token coins. E.g. coins made of nickel, copper, aluminium, etc. In India token coins are of ₹ 1, ₹ 2, ₹ 5, and ₹ 10. But difficulties in the transportation of token coins gave rise to paper money.

(e) Paper money: Paper money is made of paper. In India all currency notes of ₹ 5, ₹ 10, ₹ 50, ₹ 100, ₹ 200,
₹ 500, and ₹ 2000 are issued by the Reserve Bank of India (RBI) on behalf of the Government of India. Paper money has a very small intrinsic value of its own.

(f) Bank money or Credit money: Bank money refers to bank deposits. This can be withdrawn or transferred on demand by means of cheque, demand draft, etc. These are not legal tender money, but through credit instruments, money can be transferred from one place to another and from one person to another. Today most of the big payments are made or received through cheques.

(g) Plastic money: In recent years due to the advancement of technology use of plastic money like credit cards, debit cards also have become very popular.

(h) Electronic money: It is the most recent development of money. Funds are electronically transferred through mobile phones, smart cards, etc. With this invention, transactions through worldwide have become very easy and popular.

Question 3.
Explain in detail the main functions of money.
Answer:
Functions of money can be broadly divided into the following 3 groups:

• Primary functions
• Secondary functions
• Contingent functions.

(a) Primary Functions:

• Medium of exchange: The most important function of money is to make buying and selling of goods and services possible in the market ie. it serves as a medium of exchange. Thus, money facilitates the sale and purchase of goods in the
• market.
• Measure of value or unit of account: Price is the value of a commodity or service expressed in terms of money. Hence it becomes easier for anyone to compare or know the value of any two or more commodities.

Different countries use different currencies to express the value of their commodities. E.g. Rupee in India, Pound in the UK, Dollar in the USA, etc. Thus, money as a measure of value helps in estimating the cost, revenue, and profits of the business firms.

(b) Secondary Functions

• Standard of deferred payment: Deferred payments are the payments that are to be made at a future date. Buying and lending were not possible in a barter economy. Now, this function of money develops financial and capital markets and helps in the growth of the economy.
• Store of value: Money acts as a store of value. It is a convenient form in which we can store the value or savings for future use. According to J.M. Keynes, money is a link between the present and future. .
• Transfer of value: Money helps to transfer values from one place to another or from one person to another due to its general acceptability. One can sell his movable or immovable belonging at one place and buy at another place. Values can thus be transferred. In modern times people generally use cheques, electronic transfers, etc instead of using currency notes for transferring values.

(c) Contingent Functions:

• Measurement of National Income: Country’s National Income accounting is possible only because of money as a unit of account.
• Basis of credit: Modern economy is based on credit i.e. promise to pay. Hence lending and borrowing activities are made easy by using money. Money Provides a base for the creation of credit money.
• Estimates of macroeconomic variables: Macroeconomic variables such as Gross National Product (GNP), total investments, total savings, taxes, etc. can be easily estimated in money terms.
• Imparts liquidity: Money is the most liquid asset which can be easily converted into any other asset. For example land, machinery, shares, etc. can be bought and sold in terms of money.

6. Case Study:

Read the passage and answer the following questions:

Shiv is working in the USA and his old parents live in Mumbai. Every month he transfers money from there in father’s bank account and also pays all their utility bills from there.

Question (a).
What type of money is used by Shiv?
Answer:
Shiv uses an electronic, mode of money for transferring money from the USA.

Question (b).
Write any one way how parents can withdraw cash?
Answer:
Parents of Shiv can withdraw money by means of a cheque or withdrawal slip.

Question (c).
Suggest anyone App that can be used by parents.
Answer:
Parents in Mumbai can use the app – called “Google Pay”.