PT = MV + MlVl
\(P=\cfrac { { MV1 }+{ MV 1} }{ T } \)

(i) Primary functions
(ii) Secondary functions
(iii) Contingent functions
(iv) Other functions

Stagflation is a combination of stagnant economic growth, high unemployment and high inflation.

(i) "Too much of Money chasing too few goods" - Coulbourn
(ii) "A state of abnormal increase in the quantity of purchasing power" - Gregorye

(i) Plastic money refers to the hard plastic cards used everyday in place of actual bank notes.
(ii) They aim at removing the need for carrying cash to make transactions.
(iii) (E.g.) Cash cards, Credit cards, Debit cards, Pre-paid Cash cards, Store cards, Forex cards and Smart cards.

(i) The paper currency standard reffers to the monetary system in which the paper currency notes issued by the treasury of the Central Bank.
(ii) Paper currency is not convertible into any metal.
(iii) Its value is determined independent of the value of gold or any other commodity.
(iv) It also known as managed currency standard.

Barter System:
(i) Goods exchange for goods is known as Barter System.
(ii) In olden days goods were exchanged for goods and not for cash.
(iii) Barter system was introduced by Mesopotamia tribes.
(iv) Babylonian's also developed an improved barter system, where goods were exchanged for goods.

M₁ = Currency, Coins and demand deposits.
M₂ = M₁ + Saving deposits with post office savings banks.
M₃ M₂ + Time deposits of all commercial and cooperative banks.
M₄ = M₃ + Total deposits with post offices.
M₁ and M₂ are known as narrow money.
M₃ and M₄ are known as broad money.
The graduations are in decreasing order of liquidity.

(i) It is the slowing down the rate of inflation by controlling the amount of credit (bank loan, hire purchase) available to consumers without causing more unemployment.
(ii) It is defined as the process of reversing inflation without creating unemployment or reducing output in the company.

(i) The Marshall equation is
M = KPY where
(ii) M is the quantity of money
(iii) Y is the aggregate real income of the community
(iv) P is purchasing power of money
(v) K is the fraction of the real income which the public desires to hold in the form of money.
P= M / KY
(vi) The value of money is 1 / P = KY / M.

P = \(\frac { MV+{ M }^{ 1 }{ V }^{ 1 } }{ T } \)
P = \(\frac { (1000\times 3)+(500\times 2) }{ 4000 } \)
= Rs. 1 Per good
Value of money (1/p) = 1
If the supply of money is double
P = \(\frac { (2000\times 3)+(1000\times 2) }{ 4000 } \)
= Rs. 2 Per good
Value of money (1/p) = 1/2
Thus, when money supply in doubled, i.e., increases from Rs. 4000 to 8000, the price level is doubled. i.e., from Re. 1 per good to Rs. 2 per good and the value of money is halved, i.e., from 1 to 1/2.
P = \(\frac { (500\times 3)+(250\times 2) }{ 4000 } \)
= Rs. 1 Per good
Value of money (1/p) = 1/2
Thus, when money supply is halved, i.e., decreases from Rs. 4000 to 2000, the price level is halved, i.e., from 1 to 1/2, and the value of money is doubled, i.e., from 1 to

(i) Savings done in terms of commodities were not permanent.
(ii) With the invention of money, this difficulty has now disappeared and savings are now done in terms of money.
(iii) Money also serves as an excellent store of wealth.
(iv) Money can be easily converted into other assets such as land, machinery, plant etc.
(v) The modern money - economy has greatly facilitated the borrowing and lending processes.
(vi) In other words, money now acts as the standard of deferred payments.
(vii) The field of exchange also went on extended to distant lands.
(viii) It is therefore, felt necessary to transfer purchasing power from one place to another.

Boom or Prosperity:
1. The employment and the movement of the economy beyond full employment is the characterized features of boom.
2. There is hectic activity, money wages rise, profits increase, interest rates go up, demand for bank credit increases.
3. There is all round optimism.
Recession:
1. The turning point from boom condition is recession.
2. Failure of a company or bank brings a phase of recession.
3. Investments are drastically reduced, production falls, income and profits decline.
4. There is panic in the stock market and business is dull.
5. Liquidity preference of the people rises and money market becomes tight.
Depression:
1. The level of economic activity becomes extremely low.
2. Firms incur loss and close down resulting in unemployment.
3. Interest rate, profits, wages are low.
4. Agricultural class and wage carners are badly affected.
5. Banks do not lend to businessmen.
6. The extreme point of depression is called as "trough".
7. Keynes said that autonomous investment of the government can help the economy to come out of depression.
Recovery:
1. After depression, recovery sets in the upswing.
2. It begins with the revival of demand for capital goods.
3. The demand slowly picks up and in due course there is more production, profit, income, wages and employment.
4. Recovery may be initiated by innovation or investment or by government.