(a) "In a country, routine economic operations rely on a stable medium, to facilitate transactions for maintaining smooth economic activities." Discuss briefly the indicated function of money. (b) State the meaning and components of M1 measure of money supply. (c) State the formula to compute Credit Multiplier.

Question

Accepted Answer

(a) **Medium of Exchange Function:** The statement refers to money's function as a medium of exchange. It means money is generally accepted as a means of payment for goods and services. This function eliminates the problem of double coincidence of wants inherent in the barter system.

(b) **M₁ Measure:** M₁ = Currency with Public + Demand Deposits + Other Deposits with RBI. It includes only the most liquid forms of money.

(c) **Credit Multiplier Formula:** Credit Multiplier = 1 / CRR. It shows how banks create money through the process of credit creation from initial deposits.