Macroeconomics: Theory and Policy

12

Supply of Money

After studying this topic, you should be able to understand

• In India, the RBI publishes data on the alternative measures of money supply.
• In fractional reserve banking system, banks utilize some of their deposits for making loans and keep some as reserves for withdrawals by the depositors.
• High-powered money is money produced by the government and the central bank and held in the hands of the public and the banks.
• The lending and the borrowing activities of the commercial banks lead to credit creation.

INTRODUCTION

As already discussed in the previous chapter, there is no single definition of what constitutes money in any economy. But the problem is that money is a very important variable and, hence, cannot be just ignored. ...