The implications of the operations of the banking sector on money supply
Summary :
Table of Contents
- Brief overview
- A Mechanistic model of bank deposit determination
- Policy and non-bank public's demand for currency
- Factors influencing the money supply
- Reserves available approach
- Conclusion
Abstract
Brief Overview
Bank deposits make up over 80% of the M3. Thus bank behavior is important to money supply.
Cash is an asset to the bank. Deposits are a liability since the bank must repay them on demand or at short notice.
The banks know that at any point in time only a % of investors will remove deposits. They calculate how much will be withdrawn and invest the rest for profit.
In the balance account, the total of assets equals the total of liabilities.
Bank deposits make up over 80% of the M3. Thus bank behavior is important to money supply.
Cash is an asset to the bank. Deposits are a liability since the bank must repay them on demand or at short notice.
The banks know that at any point in time only a % of investors will remove deposits. They calculate how much will be withdrawn and invest the rest for profit.
In the balance account, the total of assets equals the total of liabilities.
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