Describe how each of the following can affect the money supply: (a) the central bank; (b)banks; and (c) depositors.

(a) The Central Bank: The central bank, such as the Federal Reserve in the U.S., can influence the money supply through several mechanisms. One of the primary ways is through open market operations, which involve the buying and selling of government securities. When the central bank buys securities, it increases the money supply by injecting more money into the economy. Conversely, selling securities reduces the money supply. The central bank can also affect the money supply by changing the reserve requirements for banks (the amount of money banks are required to hold against deposits), or by changing the discount rate (the interest rate charged to commercial banks for loans received from the central bank).

(b) Banks: Banks can affect the money supply through their lending activities. When a bank makes a loan, it creates a deposit in the borrower's bank account, effectively increasing the money supply. Conversely, when loans are repaid, the money supply decreases as the bank removes the money from the borrower's account. The amount of lending banks can do is influenced by the reserve requirements set by the central bank, as well as by the banks' own lending standards and the demand for loans from borrowers.

(c) Depositors: Depositors can influence the money supply through their decisions to hold money as cash or deposit it in banks. When depositors put money in a bank, the bank can then lend out a portion of those deposits, increasing the money supply. Conversely, if depositors choose to hold more money as cash, this reduces the amount of money available for banks to lend, which can decrease the money supply. Depositors' decisions can be influenced by a variety of factors, including interest rates, economic conditions, and their own personal financial situations.