Question

In Ramadan month and in Christmas, consumers increase their preferences for cash versus demand deposits. Explain the effect this has on

1-      Primary deposits

2-      Derivative deposits

3-      Credit multiplier

4-      Money multiplier

5-      Monetary base

6-      The money supply

solve this as sooon as plz

Answer 1

Answer -
1.Primary deposit - It includes the amount of deposits made by customers in different deposit schemes.During festival times customers withdraw money from their accounts for various purposes so the amount of deposits in bank account decreases by withdrawal of amount.

2.Derivative deposit - When the bank sanctions the loan ,this deposit is created and that specific amount deposits in the bank account of customer. In case of festival times if there is no loan amount is credited then there is no change in derivative deposits.

3.Credit multiplier - Credit multiplier is the ratio between change in deposits and change in reserve ratios. In case of festival season people induced to withdraw amount from deposits so it results in to decrease in deposits and ultimately also decrease in money multiplier.

4.Money multiplier - It is the amount of money that banks required to create with each dollar of reserves.As there is decrese in decrese in deposits money available to bank for credit creation also decreses.This results in to decrease in the money multiplier.

5.Monetary base - It measures the money supply which includes most liquid assets like coins, currency notes etc.so the monetary base increases when the liquid assets like balance of cash in hand increases.

6.The money supply - Since the amount of deposits available with bank decreses , lending activity of banks also decrese so money supply will also decrease.