The implications of the operations of the banking sector on money supply

Type :

Term papers

Pages :

8 pages

Format :

.pdf

Published date :

05/15/2009

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Summary :

 
 

Table of Contents The implications of the operations of the banking sector on money supply Table of Contents

 
  1. Introduction
  2. Brief overview
  3. A model of the mechnism of bank deposit determination
  4. Polic and non-bank public's demand for currency
  5. The banking industry's marginal cost curve
  6. Reserve available approach
  7. Conclusion
  8. References

Abstract

The UK banking sector plays a crucial role in determining not only the amount of money in circulation in the economy but also the form that it takes (e.g. fiat money or current/deposit account holdings available to be given by the banks as loans). These aspects of the monetary policy can, in turn, have key implications in achieving specific macro policy goals such as price stability, full employment and economic growth. This paper will first discuss the money multiplier approach and how the non-bank public's demand for currency affects the money supply. It will then conclude by looking at the policy implications and the limitations of this approach. Bank deposits make up for over 80% of the M31. M3 money equals notes & coins in circulation, plus private sector total sterling current and deposit accounts. Thus bank behavior is very important to money supply.

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