Thursday, April 30, 2009

factors effecting the money supply Determined by the central bank

Three of these six factors affecting the money supply are determined by the central bank,i.e., the total bank reserves, the legal reserve ratio behind demand deposit,and the legal reserve ratio behind time deposits. Two other factors, the demand for currency and the desired ratio of time deposits to demand deposits,are under the control of the public, whereas the demand for excess reserves is a function of commercial bank behavior. Only if we regard the public is bank is portfolio policies as being constant,i.e., not effected by interest rate and income demand changes, can we regard the money supply as being exogenously or externally determined by the central bank.

No comments: