UPSC CSE 2025

PRELIMS REVISION
PROGRAMME

ECONOMY REVISION
By Dr. Shivin Chaudhary
 Money
Outline D
Chapter Why Money
-

② Durand of
Money
③
Supply of Money
④ Price of Money , decisions
regarding
Price
of . Money

controlling price .

Money cheaper -
spend it easily
HOLD ON to 'deas' Money
expensive
~ ,

.
-

Inflation in the
economy
I make
money
more
expensive
-T
PL6b ·

people will spindless

AD66 control demand
and
supply.

① WHY Money
.
earlier Batter - for cong wheat
System
-
ex : / low

> Double coincidence

of account
wants .
&

No standard unit
Issues
of
>

subdivision-fungibility
- No

Lack
I
of Information
large costly goods
.
J
No
production of very
storage of
wealth How
?
-
 Barte
To solve
problems of
Need common
entity
that can
facilitate these transactions.
what arethe
this common
characteristics
of
entity ?
Permanent and
>
perpetual want
Everyone shouldto
·
sarcity
.
be
their willing exchange
goods for this
Gold-Demanda wheat
sale with
ex :
comy

③ storability -cost ofstorage

a
i

④ into smalles values·

Fungibility-divide
y

Ikggold 1000g of gold

No value should ex : =

be last

⑤ Counterfeitable
Non-
Nobody should be able to
replicate
-
.

⑥ available as Medium
of exchange -
-

supply.

Evolution
of Money
Mettalic
① commodity money ~

Money
Ad
-
 Trade Increase
4T
Gold-limited supply
s limited
fungibility
3 Problem .

eg
: 0 .

01gm-
Caut divide
further
.

Paper Money is Born

1000kg of gold-I gu of gold

lach

crore
I
gold Coins (0 01 gm)
-

mont
olgen of gold
I issue 100 notes 0
paper paper
=

H
100 notes.
paper
more

worth 0 01
"

"I
qm of gold
that 100 notes
guarantee paper
are .

0 0001
of gold .
=

ge
.

- Intrinsic value -?
&
Promise has value .

for Promise to have value I must have

ability to fulfil my
-

proms aif I am Not

required to

Resurre
FULL
System GOLD Standard.
-
.

Problem-even now
,
gold Limiting factor .
understanding
trade with the
gold standard
:

UK <
"India

So
goods exchange
rate wil a

convert
to
Rupees Ex : 18 =
0 01 .

gue of gold
pounding ↓
10
.

05
gen of gold a

. convert
EX
to
gold BE =

still-gold availability is the constraint

assets and liabilities

Understanding
gold
govt--asset-1000ky
I create

7
can
this
Because
liability
P
Liability
~
-
100 more .

N .
I have assets.

PROPORTIONAL RESERVE
System
I see that
P N
$ people generally come and
exchange
-
for gold
.

↓
I need to demonstrate
capability to honor
promise
⑤I total liabilities as actual .
actually only %
need 33
of gold
-
100 corPN SPOCORPN-1000 Gold .
kg of
Now- >

-
 -
But if this
into becomes
public people will stop valuing
umency
.
So - I will create a fictional asset worth 2000
in gold ,
that
has value in the the
eyes of people

Specialisation
L

Gort
~
Central Bank

issue currency
.
Assets > Liabilities

S long Gold . It core P .

.
N

pome a se
->
200 crore P N
.

This is sun

as inviolable , -
200 cove B .
.
N

guaranteed promise
b
· Bond
govt
a

New
System
-

fractional reserve
system
.

Gor t-RBI
promise promise
You - inherent
belief in this
promise .

- -

India 1927 -
1957

Modern -
Inconvertible Money
.
 Now- I want to delink
currency
and
gold
So that I can issue
more varency
.
You that it is
L
can
value can be say accept
illegal
NOT t

enforced as this money

.
order'

Money rigal render .

① Fiat Money .

win/w a b authority
② cannot be

extinguishing
denied while
debt.
order
of .
Limited
Beyond limit payment can
a ,
be

refused
Legal tenders
unlimited ·
No restriction on
debt.
extinguishing

Proportional
reserve Minimum resurre
t system
↓
RBI will some minimum amount
keep
Gold and securities .
of

Disadvantage of
modern money
-
think ?
 evolution
of Money
Bank
Deposits Digital currency cryptocurrency
, ,

of Money
Demand .

Greasons

Emergency
demand
(precautionary)
L
Transaction
demand
Speculative
demand

① Transaction Demand

Eboo Esto Espo

A c B C D
80 X18 EX1 2X 2

of transactions
of all
goods exchangea
value
Total value
-
ap
Price Livel Real
average
x
output
PLX
Yreal =
total
value
of
transactions.

Monydemandedx(No velocity Total value

of transactions .
=

money
aands)
of
· mes
 Mdi x
Velocity of Money = PL X
"Real.

MdT PLX Y real

(Intuitively MaTdGDP)
= -

velocity
.

circulation)
velocity (M in
M
Money
x =

Y
Real .

Classical economists
Keynesian view

is
only m matters ·
M most
significant
·

but
①- Behavioural ①- changes
Potential
"Real-congrun- on if
GDP >
depends conomy
-

in recession .
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