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ECONOMIC APPLICATIONS, CHAPTER - 16 [Money and Inflation], --------------------------------------------------------------------------------------------------------------------------1.Explain the primary functions of money., Answer, (a) Money as an Exchange Medium - One of the primary functions of money is as a, medium of exchange as it can be used for any or all transactions wherein goods or, services are purchased or sold. Therefore, one can buy or sell products in exchange, for money., (b) Measure of Value - Money can be treated as the parameter of measuring the value, of a product or service. To put simply, the value of every product or service can be, expressed in monetary form. The money also follows a standard and is accepted, worldwide even though the currency does differ from one country to another., , 2. Explain the Secondary functions of money., Answer, (a) Store of Value - Money can be stored or conserved. One can store it for future, purposes, and it is economical as well as convenient to store money., (b) Standard of Deferred Payments -Money can be used conveniently for deferred, payments which need to be paid by individuals. It has become the standard for, payments made presently or in future. For instance, if someone borrows a certain, amount from another individual, they need to repay the amount with interest. With, money in purview, it is convenient to pay the interest or make deferred, payments. This has led to the popularity of lending and borrowing transactions and, has contributed a big part in the formation of financial institutions., (c) Transfer of value - Money also acts as a means to transfer value. This function of, money has derived from the general acceptability of money as a medium of, exchange. Value can be transferred from one person to another with the help of, money. When we pay the price of any commodity to its owner, we transfer the value, to the owner.

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3. Explain the meaning of :, (i) Creeping Inflation, (ii) Walking Inflation, (iii) Running Inflation, (iv) Hyper or Galloping Inflation, Answer -, , 4. Given reason for the following statement:, "The fixed income group is adversely affected during periods of inflation", Answer - Fixed income groups like wage earners and salaried class tend to lose during, inflation as their salary fails to keep pace with the rising prices, second, even though wages, and salaries may eventually rise during inflation, there is a time lag between the price rise, and increase in wage and salaries., 5." During inflation the debtors gain and creditors lose." Explain, Answer - During periods of rising prices, debtors gain and creditors lose. When prices rise,, the value of money falls. Though debtors return the same amount of money, but they pay, less in terms of goods and services. This is because the value of money is less than when, they borrowed the money. Thus the burden of the debt is reduced and debtors gain., On the other hand, creditors lose. Although they get back the same amount of money which, they lent, they receive less in real terms because the value of money falls. Thus inflation, brings about a redistribution of real wealth in favour of debtors at the cost of creditors., 6. Which section of the society gains during inflation? Why?, Answer - Producers and Debtors gain during inflation. The producers gain the most during, inflation as they make a profit due to an increase in prices and Debtors gain because the, purchasing power was higher when they had borrowed money.