MONEY SUPPLY
,Concept of money supply
Money supply consists of currency paper money and coins in
the hands of the nonbank public plus demand
deposits/checking account balances in commercial banks.
This definition of money as currency plus demand deposits is
known as. This is the most widely used money supply concep
although economists have defined other measurements of
money supply. By formula;
M=m x MB. Where, M is the money supply
m is the money multiplier
MB is the monetary base
, Concept….
The monetary base consists of coins, paper money, and commercial bank
reserves with the central bank. The commercial banks’ reserves with the
central bank include both the reserve requirement & the excess reserves.
In banking, excess reserves are bank reserves in excess of the reserve
requirement set by a central bank. For commercial banks, excess reserve
are measure against standard reserves requirement amounts set by the
central bank.
These required reserve ratios set the minimum liquid deposits (such as
cash) that must be in reserves at the central bank; more is considered
excess. Hence, MB = C +RR+ ER
Where; C =currency, RR Required Reserves & ER = Excess Reserves
normally do not attract any interest from the central bank. However, the
central bank may give some interest on excess reserves in order to
discourage commercial banks from withdrawing them hence controlling th
amount of money in circulation.
,Concept of money supply
Money supply consists of currency paper money and coins in
the hands of the nonbank public plus demand
deposits/checking account balances in commercial banks.
This definition of money as currency plus demand deposits is
known as. This is the most widely used money supply concep
although economists have defined other measurements of
money supply. By formula;
M=m x MB. Where, M is the money supply
m is the money multiplier
MB is the monetary base
, Concept….
The monetary base consists of coins, paper money, and commercial bank
reserves with the central bank. The commercial banks’ reserves with the
central bank include both the reserve requirement & the excess reserves.
In banking, excess reserves are bank reserves in excess of the reserve
requirement set by a central bank. For commercial banks, excess reserve
are measure against standard reserves requirement amounts set by the
central bank.
These required reserve ratios set the minimum liquid deposits (such as
cash) that must be in reserves at the central bank; more is considered
excess. Hence, MB = C +RR+ ER
Where; C =currency, RR Required Reserves & ER = Excess Reserves
normally do not attract any interest from the central bank. However, the
central bank may give some interest on excess reserves in order to
discourage commercial banks from withdrawing them hence controlling th
amount of money in circulation.
