Correct, when we talk about the money supply, we are referring to the total amount of monetary assets available in an economy at a specific time. This includes cash in circulation and demand deposits.

The cash balance of commercial banks is not included in the money supply because it is not readily available to the economy for spending. It is held by the banks as reserves, not in circulation.

The Legal Reserve Requirement (LRR) is a regulation that sets the minimum reserves each bank must hold to customer deposits and notes. These reserves are designed to satisfy withdrawal demands, and can be held as vault cash or deposits with a central bank.

So, the cash balance of commercial banks does include the LRR, but it is not part of the money supply because it is not in circulation. It is held by the banks to meet regulatory requirements and to satisfy withdrawal demands.

Question

Correct, when we talk about the money supply, we are referring to the total amount of monetary assets available in an economy at a specific time. This includes cash in circulation and demand deposits.

The cash balance of commercial banks is not included in the money supply because it is not readily available to the economy for spending. It is held by the banks as reserves, not in circulation.

The Legal Reserve Requirement (LRR) is a regulation that sets the minimum reserves each bank must hold to customer deposits and notes. These reserves are designed to satisfy withdrawal demands, and can be held as vault cash or deposits with a central bank.

So, the cash balance of commercial banks does include the LRR, but it is not part of the money supply because it is not in circulation. It is held by the banks to meet regulatory requirements and to satisfy withdrawal demands.

Knowee AI · Accepted Answer

Correct, when we talk about the money supply, we are referring to the total amount of monetary assets available in an economy at a specific time. This includes cash in circulation and demand deposits.

The cash balance of commercial banks is not included in the money supply because it is not readily available to the economy for spending. It is held by the banks as reserves, not in circulation.

The Legal Reserve Requirement (LRR) is a regulation that sets the minimum reserves each bank must hold to customer deposits and notes. These reserves are designed to satisfy withdrawal demands, and can be held as vault cash or deposits with a central bank.

So, the cash balance of commercial banks does include the LRR, but it is not part of the money supply because it is not in circulation. It is held by the banks to meet regulatory requirements and to satisfy withdrawal demands.

when we say that in money supply we dont include the cashbalance of commercial banks, here cash balance doesnt mean the LRR right?

Question

When we say that in money supply we don't include the cash balance of commercial banks, here cash balance doesn't mean the LRR right?

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