Evolution of Money · Money Supply · Currency Facts · Inflation Types · WPI/CPI — BPSC / BSSC
Money: Anything that serves as a medium of exchange or payment for all goods and services.
| Stage | Form |
|---|---|
| Barter System (before money) | Exchange of goods for goods |
| Commodity Money | Animals, Shells |
| Metallic Money | Coins of Gold, Silver, etc. |
| Paper Money | Bank Notes |
| Credit Money | Bank Cheques, Credit/Debit Cards, Drafts |
| Plastic Money | Cards |
| Crypto Currency | Bitcoin, Dogecoin, etc. |
| Type | Description |
|---|---|
| Legal Tender | Issued by government/central bank; obligatory for persons to accept |
| Token Money | Intrinsic value less than face value; current ₹1 coin |
| Scarce Money | More demand than supply in international market ($) |
| Credit Money | Not compulsory to accept; promissory note, cheque, bill of exchange, bank drafts |
| Hot Money | Quickly moves in financial markets; e.g. foreign currency in stock market |
| Standard Money | Value of goods and money considered the same |
| Near Money | Quick and easily convertible to cash — gold, silver, savings accounts |
| Surplus Money | Excessive supply than demand in international market (Indian rupee) |
Liquidity: Ability to convert assets into cash quickly without loss or delay.
Most liquid asset: Cash
| Measure | Definition | Type | Liquidity |
|---|---|---|---|
| M₀ | Currency in circulation + Bankers deposits with RBI + Other deposits with RBI | Reserve Money | — |
| M₁ | Currency with Public + Net Demand deposits with commercial banks | Narrow Money | Highest |
| M₂ | M₁ + Savings deposits with Post-office | Narrow Money | Less than M₁ |
| M₃ | M₂ + Net time deposits with commercial banks | Broad Money | Less than M₂ |
| M₄ | M₃ + Total post office deposits (excluding National Savings Certificates) | Broad Money | Lowest |
Un-declared income / Black Money is part of the parallel economy.
M = Money Supply, V = Velocity of Circulation, P = Price Level, T = Transactions
Other 4 countries: USA (Dollar $), Japan (Yen ¥), European Union (Euro €), UK (Pound Sterling £)
According to Keynes, actual inflation begins after the full employment point.
| Type | Description |
|---|---|
| Creeping Inflation | Inflation rate in single digits (3% or less) |
| Walking Inflation | 3% to 6%, or less than 10% per annum |
| Running Inflation | Prices rise rapidly at 20–30% per annum |
| Galloping Inflation | Annual rate in two/three digits (20–100%) |
| Hyper Inflation | Inflation rate above triple digits |
| Open Inflation | Prices free to rise without government intervention |
| Imported Inflation | Due to rising prices of imported raw products (e.g., petroleum) |
| Group | Weight |
|---|---|
| Primary Articles | 22.62% |
| Fuel and Power | 13.15% |
| Manufactured Products | 64.23% |
PPI (Producer Price Index): Considered better than WPI and CPI; measures inflation from the producer's perspective.
| Category | Full Form | Base Year | Compiled By | Key Use |
|---|---|---|---|---|
| CPI-IW | CPI – Industrial Workers | 2016 | Labour Bureau | Determining dearness allowance of employees |
| CPI-AL | CPI – Agricultural Labourers | 2012 | Labour Bureau | — |
| CPI-RL | CPI – Rural Labourers | 2012 | Labour Bureau | — |
| CPI-R | CPI – Rural | 2012 | — | — |
| CPI-U | CPI – Urban | 2012 | — | — |
| CPI-C | CPI – Combined (R + U) | 2012 | CSO (now NSO) | Used by RBI |
CPI-C is used by RBI, published by the Central Statistics Office (now National Statistical Office).
| Topic | Key Fact |
|---|---|
| Money Definition | Medium of exchange or payment for all goods and services |
| Most Liquid Asset | Cash |
| Legal Tender | Issued by government/central bank; must accept |
| Token Money | Intrinsic value < Face value; Current ₹1 coin |
| Near Money | Easily convertible to cash — gold, silver, savings accounts |
| Fisher's Exchange Equation | MV = PT |
| M₁ | Narrow Money; Highest Liquidity |
| M₄ | Broad Money; Lowest Liquidity |
| M₀ | Reserve Money |
| ₹ Symbol Designed By | Uday Kumar (IIT Guwahati); accepted 2020 |
| India | 5th country to have its own currency symbol |
| Decimal Currency Adopted | 1957 |
| Devaluation in India | 1949, 1966, 1991 |
| Inflation | Continuous rise in general price level |
| Inflation Target (India) | 4% ± 2% |
| Demand Pull Inflation | Rise in demand |
| Cost Push Inflation | Rise in production cost |
| Keynes on Inflation | Actual inflation begins after full employment point |
| Stagflation | High inflation + High unemployment simultaneously |
| Deflation | Fall in general price level (negative inflation) |
| Reflation | Deliberately raising prices by increasing money and credit |
| Headline Inflation | Measured by CPI-C; includes food and energy |
| Core Inflation | Excludes food and fuel; related to non-food manufactured goods |
| WPI First Published | January 1942; Base year: 2011–12; New proposed: 2022–23 |
| WPI Compiled By | Office of Economic Advisor, Ministry of Commerce and Industry |
| PPI | Producer Price Index; better than WPI and CPI |
| CPI-IW Base Year | 2016; compiled by Labour Bureau |
| CPI-C Used By | RBI; Base year 2012; published by NSO |
| Phillips Curve | Inverse relationship between inflation and unemployment |