Class 12 Economics - BIHAR
Money and Banking
The chapter Money and Banking in Class 12 Economics explores the evolution of money, its functions, and how commercial banks and the central bank create and control money supply in an economy. For Bihar Board (BSEB) students, this is a high-scoring and core macroeconomics chapter. Board exams frequently test numerical problems on the money multiplier, credit creation process, and theoretical questions distinguishing between central and commercial banks. Mastering this unit helps students understand the backbone of the financial system, monetary policy instruments like repo rate and CRR, and forms a strong foundation for understanding national income and macroeconomic equilibrium.
Start Learning FreeKey Concepts
Barter System and Double Coincidence of Wants
The exchange of goods for goods without the use of money, which requires the simultaneous fulfillment of mutual wants by both buyers and sellers.
Money Supply
The total volume of money held by the public at a particular point of time in an economy, categorized measures include M1, M2, M3, and M4.
Credit Creation by Commercial Banks
The process by which commercial banks expand their demand deposits multiple times based on their initial cash reserves and the legal reserve ratio.
Central Bank and its Functions
The apex institution of a country's monetary system, such as the RBI, responsible for currency issue, acting as banker to the government, and controlling money supply.
Quantitative Instruments of Monetary Policy
Tools used by the central bank to regulate the overall volume of credit, including Repo Rate, Bank Rate, Reverse Repo Rate, CRR, SLR, and Open Market Operations.
Important Formulas
Board Exam Info
In the Bihar (BSEB) Class 12 Economics board exam, the Money and Banking chapter typically carries around 6 to 10 marks. Questions usually include objective (multiple-choice) questions, short-answer questions on the functions of money or central bank, and numerical problems based on the money multiplier and credit creation.
Frequently Asked Questions
What is the difference between Central Bank and Commercial Bank?
How does the Central Bank control inflation using repo rate?
During inflation, the central bank increases the repo rate, making borrowing expensive for commercial banks. This reduces credit creation, lowers money supply, and helps control rising prices.
Why is fiat money accepted as a medium of exchange?
Fiat money has no intrinsic value, but it is accepted as a medium of exchange because it is backed by the government order (legal tender) and mandated by law.
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