SUPPLY OF MONEY AND FACTORS AFFECTING ITS DISTRIBUTION, Definition: The supply of money refers to the total amount of money available for use in the economy at a given period of time. The supply of money involves the currency in the form of bank notes and coins circulating outside the banking system as well as the bank deposits in current accounts, which can be withdraw by cheque (i.e. bank money
forms of money
there are about three forms of money as thought us during my school days but today there are various forms in which money can be seen in circulation and we were also taught trade by barter. for the records, money can be found in form of bank notes, coins and commodity. but in todays world, you will find money in the following form for doing business and general merchandise . so we have bank notes, electronic money, commodity form of money, coins, debentures, drafts, and cheques which can serve as a means of doing business or transactions, in facilitating international trade or or paying of bills electronics or wire is key key to making payment
There are different types of money in the world economy, these forms are as follows: Fiat, commodity, representative, fiduciary,and commercial bank money as known as bank notes
Electronic money (e-money) is broadly defined as an electronic store of monetary value on a technical device that may be widely used for making payments to entities other than the e-money issuer
MONEY: DEMAND FOR AND SUPPLY OF MONEY.
Identify the various motives for holding wealth in the form of money Explain the elementary quantity theory of money Identify the determinants of the supply of money Explain how changes in the price level affect the purchasing power of money.
FACTORS AFFECTING THE SUPPLY OF MONEY
- Bank rate: Bank rate is the rate of interest which the Central Bank charges the commercial(functions of central bank) banks for lending money to or from them and discounting their bills. If the bank rate is high it will discourage banks from borrowing, discounting of deposits commercial banks are expected to keep with them. Assuming that the
cash reserve is high, the supply of money
- Cash reserve: Cash reserve, also called cash ratio, is the percentage of the deposits commercial banks are expected to keep with them. Assuming that the cash reserve is high, the supply of money will definitely be low and vice versa.
- Economic situation: During the period of inflation in an economy, the central bank will reduce the supply of money and increase it during the period of deflation.
- Demand for excess reserves: When commercial banks demand for excess reserves, the supply of money will increase.
- Total reserves of the central bank: The supply of money is affected by the total reserves of the central bank. If the total money supplied by the central bank is high money supply will also be high, and vice versa.
- market concept
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- Fixed capital: These are assets which are not used up in the course of production. Fixed assets include those durable assets of a business that can last for a very long time. These assets or capital do not change their form in the process of production. Examples of fixed capital are land, buildings, tools, motor vehicles, plants and machinery.
- Circulatory or working capital: These are assets which are used up in the course of production. These consist of capital goods which either change their form or are used up in the process of production. Examples of working capital include raw materials, water and fuel.
- Current or liquid capital: Current capital is the type of capital that are required for the day-to-day running of productive activities. They are also changed from one form to another. Examples are finished goods and money
- Social capital: This includes those forms of capital or assets provided by the government that aid production. Examples of social capital are amenities provided by the government which are roads, electricity, water and telephones. These amenities, when they are readily available, aid the process of production.
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