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Question
State the components of the supply of money.
Very Long Answer
Very Short Answer
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Solution 1
The components of money supply are the currency component and the deposit component.
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Solution 2
The total money supply in an economy consists of two main components: the currency component and the deposit component.
- Currency: This includes paper notes and coins that are issued by both the central bank and the government. Coins are primarily used for small-value transactions and, in the present day, are typically issued only by the government. These coins are known as token coins, where their face value is significantly higher than their actual metallic or intrinsic value. Coins form a relatively minor part of the overall modern monetary system.
- Deposit Money: This refers to the demand deposits that individuals and businesses hold in commercial banks. These deposits allow holders to make payments by issuing cheques. Also known as bank money, demand deposits are a convenient and secure method for conducting transactions, as they enable cheque-based payments without the need to carry physical cash.
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