Test: Meaning and Functions of Money - Class 10 MCQ

Money plays a crucial role in enabling the flow of capital, allowing for investments in various sectors of the economy, which is essential for growth and development.

Bank money refers to demand deposits that can be accessed through cheques, making it a highly liquid form of currency. This form allows for transactions without the need to carry physical cash.

Money acts as a medium of exchange by enabling transactions without the need for a direct barter of goods. This simplifies trade, as individuals can buy and sell without needing to find someone who wants what they have to offer, thus fostering economic activity.

Storing wealth in goods is risky because the value of these goods can fluctuate, and they may also incur storage costs, making them less practical for wealth preservation compared to money.

Money facilitates the process of saving and investing, allowing individuals to accumulate wealth over time more efficiently than if they were to rely on goods or barter systems.

Many goods are indivisible, meaning that they cannot be easily split into smaller units for trade, which complicates transactions. Money resolves this issue by providing a flexible medium of exchange.

Bank money is characterized by demand deposits that can be accessed via cheques, allowing for a flexible and convenient means of transaction in everyday life.

The barter system struggles with a double coincidence of wants, meaning that both parties must have what the other desires at the same time, which complicates trade. This limitation led to the development of money.

Commodity money is the earliest form of money, where actual goods were used as a medium of exchange. This form had its challenges, such as the inability to standardize value and difficulties in storage and divisibility.

The barter system requires that exchanges occur simultaneously, meaning that no deferred payments are possible. Money allows for transactions to occur without immediate delivery of goods.

Cognisability refers to the ease with which money can be recognized, which helps prevent confusion and fraud in transactions. Distinct features and designs are essential for this purpose.

Fiat money is not backed by a physical commodity but is considered legal tender by governmental decree. Its value is derived from the trust and acceptance of those who use it.

Money aids in economic stability by allowing individuals and businesses to accumulate wealth, which can then be invested back into the economy, fostering growth and reducing uncertainty.

Divisibility is crucial because it enables the exchange of goods and services of varying values. This feature ensures that transactions can occur at appropriate amounts without requiring whole units.

The primary functions of money are to act as a medium of exchange, a measure of value, and a store of value. Quality of goods relates to the attributes of products rather than the functions of money.

Near money refers to assets that are not cash but can be quickly converted into cash, such as bank deposits. This liquidity makes it an important aspect of financial transactions.

The broad definition of money (M2) includes M1 (currency and demand deposits) along with savings deposits, which provides a wider view of money supply in the economy.

The narrow definition of money, M1, includes physical currency in circulation and demand deposits with commercial banks, both of which are immediately accessible for transactions.

Money plays a role in production decisions by providing a standard measure for production costs, guiding producers on how much of each production factor to utilize based on profitability.

Paper money can be produced in standardized forms, making it easier to manage and distribute compared to metallic money, which poses challenges in terms of weight and handling.