what are the factors affecting the Demand and Supply of Money?
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Factors affecting the demand for money:
1. The rate of interest on loans.
2. The number / value of monetary transactions that we are expected to carry out.
3. The extent to which we also want to hold other financial assets, such as bonds, property, saving (this is also influenced by the rate of interest).
4. Changes in GDP.
5. The extent to which it is possible to use debit cards and/or credit cards i.e. the pace of financial innovation.
6. The extent to which we might have to pay out large unexpected payments, for example the precautionary motive.
7. The rate of anticipated inflation.
Factors affecting the supply of money:
1. “Open market operations” – this is effectively the same as Quantitative Easing. The Central Bank buys government bonds, effectively creating money.
2. The “reserve requirement” imposed on banks – this is the % of deposits made by customers at the bank that the bank must keep hold of rather than lending it out.
3. The policy interest rate set by the central bank – the rate of interest will influence how many households and businesses are willing and able to borrow. Most money in a modern economy is created by commercial bank lending so the rate of interest ultimately does have a bearing on the supply of money.
1. The rate of interest on loans.
2. The number / value of monetary transactions that we are expected to carry out.
3. The extent to which we also want to hold other financial assets, such as bonds, property, saving (this is also influenced by the rate of interest).
4. Changes in GDP.
5. The extent to which it is possible to use debit cards and/or credit cards i.e. the pace of financial innovation.
6. The extent to which we might have to pay out large unexpected payments, for example the precautionary motive.
7. The rate of anticipated inflation.
Factors affecting the supply of money:
1. “Open market operations” – this is effectively the same as Quantitative Easing. The Central Bank buys government bonds, effectively creating money.
2. The “reserve requirement” imposed on banks – this is the % of deposits made by customers at the bank that the bank must keep hold of rather than lending it out.
3. The policy interest rate set by the central bank – the rate of interest will influence how many households and businesses are willing and able to borrow. Most money in a modern economy is created by commercial bank lending so the rate of interest ultimately does have a bearing on the supply of money.
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The three main factors affecting the supply for money is:
1.Open markets operations-the central bank will buy bonds effectively creating money.
2.The reserve requirement imposed on banks- This is the percentage of of the deposits made by customers at the bank that the bank matches keep hold of rather than lending the money out.
3.The policy interest rates set by the central bank-This influences how many households and business people borrow money. If interest rates are low then high rate of borrowing.
FACTORS AFFECTING DEMAND FOR MONEY.
1.The rate of interest on the loans.
2.The total number of monetary transactions we want to carry out.
3.The extent to which we also want to hold other financial assets such as property.
4.The rate of anticipated inflation.
5.The extent to which we might have to pay out large unexpected payments.
1.Open markets operations-the central bank will buy bonds effectively creating money.
2.The reserve requirement imposed on banks- This is the percentage of of the deposits made by customers at the bank that the bank matches keep hold of rather than lending the money out.
3.The policy interest rates set by the central bank-This influences how many households and business people borrow money. If interest rates are low then high rate of borrowing.
FACTORS AFFECTING DEMAND FOR MONEY.
1.The rate of interest on the loans.
2.The total number of monetary transactions we want to carry out.
3.The extent to which we also want to hold other financial assets such as property.
4.The rate of anticipated inflation.
5.The extent to which we might have to pay out large unexpected payments.
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