Supply of Money

Supply of Money - insurance agencies, certificate deposits...

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Supply of Money: Supply of money is carried out and regulated by a monetary authority. Generally such a monetary agency is in the form of a central bank (Federal Reserve Bank , Bank of England, Reserve Bank of India etc.) and the Finance Minister or such other government agency. The supply of money is institutional and part of a policy decision. It does not depend upon the economic behavior of individuals of firms. Therefore the supply of money remains stable in the short run. In a modern economy besides official currency there is a variety of other resources which act as near money and perform similar functions as medium of exchange. Some of them are convertible into currency after a lapse of time and with some inconvenience. These include checkable deposits, current deposits, savings and fixed deposits, very long-term deposits with postal or
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Unformatted text preview: insurance agencies, certificate deposits etc. All these forms of money make up for the total supply of money. With the inclusion of some or more varieties of these kinds of money the total supply can be classified into four categories. These are as follows: M 1 = Total currency, coins and notes, checkable or current deposits M 2 = M 1 + Saving and fixed (time) deposits M 3 = M 2 + Insurance company and postal bank deposits M 4 = M 3 + very long-term deposits, certificate deposits etc. According to the context of this discussion, supply of money can be stated in terms of one or the other category. When monetary authority directly attempts to alter money supply or quantity then it is of M 1 the type. But generally, money supply is of the M 3 type....
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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