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Monetary System - Economics, UPSC IAS Exam Preparation Video Lecture | Indian Economy (Prelims) by Shahid Ali
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FAQs on Monetary System - Economics, UPSC IAS Exam Preparation Video Lecture - Indian Economy (Prelims) by Shahid Ali
| 1. What is the monetary system? |  |
Ans. The monetary system refers to the set of rules, policies, and procedures that govern the creation, distribution, and control of money within an economy. It includes the institutions, such as central banks, commercial banks, and financial markets, that facilitate the flow of money and the mechanisms through which money is created and regulated.
| 2. How does the monetary system affect the economy? | |
Ans. The monetary system plays a crucial role in influencing the overall economic activity. Changes in the money supply, interest rates, and monetary policies can impact various economic variables such as inflation, employment, economic growth, and exchange rates. For instance, increasing the money supply may stimulate economic growth, but excessive money creation can lead to inflation.
| 3. What are the different types of monetary systems? | |
Ans. There are different types of monetary systems, including:
- Fiat money system: This is the most common system globally, where the currency has value because the government declares it as legal tender.
- Commodity money system: In this system, the currency is directly linked to a physical commodity, such as gold or silver, which holds intrinsic value.
- Representative money system: Here, the currency represents a claim on a commodity, usually precious metals, stored by a central authority.
- Electronic money system: This refers to digital or virtual currencies, such as cryptocurrencies, which are not physical but can be used for transactions.
| 4. How is the monetary system regulated in India? | |
Ans. In India, the monetary system is regulated by the Reserve Bank of India (RBI), which is the central bank of the country. The RBI formulates and implements monetary policies to maintain price stability and control inflation. It regulates the money supply, sets interest rates, conducts open market operations, and supervises commercial banks to ensure the smooth functioning of the monetary system.
| 5. What are the major challenges faced by the monetary system? | |
Ans. Some of the major challenges faced by the monetary system include:
- Inflation control: Maintaining price stability and controlling inflation is a constant challenge for central banks.
- Financial stability: Ensuring the stability of the financial system and preventing banking crises or financial panics.
- Exchange rate management: Managing exchange rates to promote export competitiveness and prevent currency volatility.
- Technological advancements: Adapting to technological advancements, such as digital currencies and fintech, while ensuring financial security and stability.
- Global coordination: Coordinating monetary policies globally to address international economic imbalances and financial crises.
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Dec 21, 2024 Last updated |
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