NCERT Class 12 Economics Introductory Macroeconomics: Chapter 3 — 36 36 36 36
This chapter from NCERT's Introductory Macroeconomics for Class 12 introduces the concept of money and its functions in a modern economy. It begins by defining money as a commonly accepted medium of exchange, highlighting its necessity to overcome the inefficiencies of barter systems, particularly the 'double coincidence of wants'. The chapter details the primary functions of money: medium of exchange, unit of account, and store of value. It explains how money simplifies transactions, allows for the valuation of goods and services, and provides a stable way to store wealth. The text also touches upon the shift towards digital transactions and cashless societies, mentioning initiatives like Jan Dhan accounts and e-Wallets. Finally, it introduces the demand for money, linking it to income and interest rates, and briefly mentions the supply of money. This chapter is crucial for understanding macroeconomic principles related to monetary systems and their impact on economic activity.
Quick info
| Board | CBSE / NCERT |
|---|---|
| Class | Class 12 |
| Subject | Economics |
| Book | Introductory Macroeconomics |
| Chapter | Chapter 3 — 36 36 36 36 |
| Language | English |
| PDF type | NCERT Textbook |
| Session | CBSE 2026 |
| Reading time | 3 minutes |
| Word count | 593 |
Learning outcomes
- Define money and explain its importance in an economy.
- Differentiate between barter system and monetary exchange.
- Identify and explain the main functions of money (medium of exchange, unit of account, store of value).
- Understand the concept of purchasing power of money.
- Recognize the role of money in facilitating transactions and storing wealth.
- Briefly understand the demand for money in relation to income and interest rates.
Vocabulary
| Word | Meaning |
|---|---|
| Medium of exchange | An intermediate good, generally accepted in exchange for goods and services. |
| Barter exchange | Economic exchanges without the mediation of money. |
| Double coincidence of wants | A situation in barter where each trader has the commodity the other wants. |
| Unit of account | A measure of value; prices of all goods and services are expressed in monetary units. |
| Store of value | An asset that holds its value over time and can be used for future consumption or exchange. |
| Purchasing power of money | The amount of goods and services that can be bought with a unit of money. |
| Cashless society | An economic state where financial transactions are conducted digitally, not with physical currency. |
| Demand for money | The amount of money that households and firms wish to hold. |
| Interest rate | The rate at which interest is paid by a borrower for the use of money that they borrow. |
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Practice questions
- What is the primary definition of money? Answer: Money is a commonly accepted medium of exchange.
- What is a major problem with the barter system? Answer: The barter system suffers from the 'double coincidence of wants', making exchanges difficult.
- Name the three main functions of money discussed in the chapter. Answer: The three main functions are medium of exchange, unit of account, and store of value.
- How does money act as a unit of account? Answer: Money provides a common measure of value, allowing the prices of all goods and services to be expressed in monetary units.
- What does it mean for money to be a store of value? Answer: It means that wealth can be stored in the form of money for future use, as it is not perishable and has lower storage costs than many commodities.
Practice MCQs
Q1. Which of the following is the primary function of money?
Explanation: The chapter explicitly states that the first and foremost role of money is that it acts as a medium of exchange, essential for facilitating transactions.
Q2. The difficulty in finding someone who has what you want and wants what you have is known as:
Explanation: This situation, where both parties must have a surplus of the commodity the other desires, is termed the 'double coincidence of wants' and is a key drawback of the barter system.
Q3. When we say a wristwatch costs Rs 500, money is acting as a:
Explanation: Expressing the value of goods and services in monetary units (like Rupees) demonstrates money's function as a unit of account.
Q4. Which function of money allows wealth to be saved for future use?
Explanation: Money's ability to be held and used later without significant loss of value makes it a store of value.
Q5. A rise in the general price level leads to:
Explanation: When prices rise, a unit of money can buy fewer goods and services, thus its purchasing power deteriorates.
Q6. According to the text, what factor influences the demand for money besides the value of transactions?
Explanation: The chapter states that the rate of interest affects how much money people hold; higher interest rates reduce the demand for holding money.
Frequently asked questions
What is money according to the NCERT Class 12 Economics textbook?
Money is defined as a commonly accepted medium of exchange that facilitates economic transactions.
What problem does money solve that the barter system faces?
Money solves the problem of the 'double coincidence of wants', which makes barter exchanges inefficient and difficult.
What are the three main functions of money explained in the chapter?
The three main functions are: medium of exchange, unit of account, and store of value.
How does money act as a unit of account?
Money acts as a unit of account by providing a common measure to express the value of all goods and services.
What is the 'purchasing power of money'?
The purchasing power of money refers to the quantity of goods and services that can be bought with a unit of money. It decreases when the price level rises.
What is a cashless society?
A cashless society is one where financial transactions are primarily conducted through digital means rather than physical currency like notes and coins.
What factors influence the demand for money?
The demand for money is influenced by the value of transactions (related to income) and the rate of interest.
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NCERT Class 12 Economics — Introductory Macroeconomics — Chapter 3 — 36 36 36 36. Verified by NCERT Help Editorial Team. Reviewed on 29 Jul 2026. Last updated 10 Aug 2026.