ECON102 Lecture Notes - Lecture 16: Reserve Requirement, Money Supply, Market Liquidity

• School: University of Alberta
• Department: Economics
• Course: ECON102
• Professor: Andrew Wong

Document Summary

They are balances in banks that depositors can access on demand: savings account (savings deposits) balances in banks that cannot be used directly to make payments. What are the benefits of the demand deposit or checking account: they do the same job as having cash. Who controls the money supply: commercial banks: could affect the money supply since they could affect demand and savings deposits, which are part of the money supply. How can commercial banks affect the money supply: money (deposit) creation process. Money supply is not only controlled by the central banks (bank of canada in canada/ federal. Reserve in america), it is also commercial banks. In some countries, commercial banks are required by law to keep certain fraction (%)of their deposits as a reserve as cash so that they can pay anyone who would like to withdraw his or her money. In canada, this is not compulsory, but commercial banks do it voluntarily.