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Tanima Dutta, Lovely Professional University Unit-16 Money Supply: Definition and Importance of Money

Unit-16 Money Supply: Definition and Importance of Notes

Money

Contents
Objectives
Introduction
16.1 Money Supply: Meaning and Definition
16.2 Two main Components of Money Supply—Currency and Demand Deposits
16.3 Monetary Aggregates and Money Supply Measures in India
16.4 Factors Influencing Supply of Money: A Theoretical Prescription
16.5 Summary
16.6 Keywords
16.7 Review Questions
16.8 Further Readings

Objectives

After studying this unit, students will be able to:
y Know the Money Supply,
y Study of money Multiplier,
y Know the Algebraic Expression,
y Know the limits of credit creation.

Introduction

After knowing the meaning, working and qualities of money in last chapter, you may have the curiosity
to know the answers of many questions. As you would curious to know that how the money can
come in trend in economy. How the quantity of money supply is determined in economy? Is there
any role of commercial banks and people in the relation of quantity of money supply in economy?
What should be the components of monetary aggregates? Etc. We’ll try to answer sufficiently to these
entire questions in this chapter. The contribution of commercial banks in money supply (which is also
known as the name of credit creation of commercial banks) is also discussed in this chapter. Except
it, the current condition of money supply in India is also discussed briefly.

16.1 Money Supply: Meaning and Definition

The purport of money supply is to the quantity of money available in economy. This is a stock
perception which is measured in a time. The addition of total quantity of current currency and total
quantity of demand deposits in economy in a definite time is called as money supply. Currency is the
addition of current coins and notes in economy. Demand deposit or cheque deposit is called those bank

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