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Why Are Funds In Checking Accounts Called Demand Deposits

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‘Simultaneous fulfillment of mutual wants by buyers and seller’s is known as double coincidence of wants. There is lack of double coincidence in the wants of buyers and sellers in barter exchange. The producer of jute may want shoes in exchange for his jute. But he may find it difficult to get a shoemaker who is also willing to exchange his shoes for jute. Thus a seller has to find out a person who wants to buy seller’s goods and at the same time who must have what the seller wants. This is called double coincidence of wants which is the main drawback of barter exchange.

Treasury or the Federal Reserve Bank but circulate in the economy. Closely related to currency are checkable deposits also known as demand deposits. A checking account is a deposit account held at a financial institution that allows withdrawals and deposits. The two main differences between demand deposit and time deposit accounts are how easily you can access the money in the account and how much interest the account earns.

The concept of money supply still has certain elements that need to be explored. This mainly includes figuring out what can be treated as ‘money’ and what can’t. For example, commercial banks’ fixed deposits are not treated as ‘money’ under money supply. In contrast, the savings deposits made under the Post office savings bank cannot be counted as money because they lack exchange via cheque and face no liquidity. The supply of money, on the other hand, is a different concept.

Farmers usually take crop loans at the beginning of the season and repay the loan after harvest. Banks make use of the deposits to meet the loan requirements of the people. Explain any three loan activities of banks in India. Supervision by the Reserve Bank of India on the functioning of the formal sector.

  • A checking account is a deposit account held at a financial institution that allows withdrawals and deposits.
  • Term deposits also known as time deposits are investment deposits made for a predetermined period ranging from a few months to several years.
  • Since demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy.

Possession of money enables one to get hold of almost any commodity in any place and money never locks a buyer. It is this peculiarity which distinguishes money from all other commodities. A preference for liquidity is preference for money. Wealth can be stored in terms of money for future. It serves as a store value of goods in liquid form.

Demand Deposit Types

Since demand drafts/cheques are widely accepted as a means of payment along with currency they constitute money in the modern economy. Demand deposits can be withdrawn on demand and can be used as a medium of exchange just like money. Payments in case of demand deposits can be made through cheque.



Posted: Thu, 04 May 2023 20:35:18 GMT [source]

M2 money supply is the money supply that includes currency checking accounts in banks traveler’s checks savings deposits money market funds and certificates of deposit. M1 includes demand deposits and checking accounts which are the most commonly used exchange mediums through the use of debit cards and ATMs. Of all the components of the money supply M1 is defined the most narrowly.

What are demand deposits and why should they be included in the stock of money?

An economy based on barter exchange (i.e., exchange of goods for goods) is called C.C. Economy, i.e., commodity for commodity exchange economy. In such an economy, a person gives his surplus goods and gets in return the goods he needs. For example, when a weaver gives cloth to the farmer in return for getting wheat from the farmer, this is called barter exchange. Similarly, the farmer can get other goods of his requirements like shoes, cow, plough, spade, etc. by giving his surplus wheat . Thus system of barter exchange fulfils to some extent the requirement of both the parties involved in exchange.

Money as medium of exchange solves the barter’s problem of lack of double coincidence of wants as money has facilitated separation of purchase from sale. You can sell goods for money to whoever wants it and with this money you can buy goods from whoever wants to sell them. People exchange goods and services through medium of money when they buy goods or sell products. Thus money acts as intermediary which solves barter’s problem of lack of double coincidence of wants. At very high rate of interest, say 15%, people convert their entire money holding into bonds indicating speculative demand for money to be zero.

These two are the basic prerequisites for getting a loan from a bank. Formal sources of credit do not include employers as there is no role of these employers all these works are related to banks and the cooperatives. Employers are there merely to serve the bank staff and do the work as it is asked to do by their owner. Lal the major decisions are taken by the cooperatives, employers have to just follow those rules and regulations set up by the banks. Majority of the credit needs of the…….households are met from informal sources. Neither a farmer has any such asset to put as mortgage nor would any kind of documental procedure be done by them.

Doubtlessly money helps in removing the difficulties of barter system as explained above. Money as store of value solves the barter problem of lack of storing wealth . The shoemaker wants a loaf in exchange of his shoes but exchange value of a piece of loaf is but a fraction of a pair of shoes. Shoes cannot be sub-divided without destroying their values.

Which would be included in the definition of the money supply currency and checkable deposits owned by?

Helps to meet the working capital needs of production. “Focuses of currency have undergone several changes since early times.” Elucidate. Why do banks and cooperative societies need to lend more?

Theory, EduRev gives you an ample number of questions to practice Why are demand deposits considered as money? Tests, examples and also practice Class 10 tests. How can the formal sector loans be made beneficial for poor farmers and workers?

Because of this feature, banks are willing to lend to the poor women when organised in SHGs even though they have no collateral as such. Most of the important decisions regarding the savings and loan activities are taken by the group members. “ ’Self Help Groups’ help borrowers to overcome the problem of lack of collateral.” Examine the statement. Banks promote all the sectors of the economy through loans. They charge from borrowers and what is paid to depositors is their main source of income.

Brookfield Renewable Partners L P : OUR OPERATIONS – Form 6-K … –

Brookfield Renewable Partners L P : OUR OPERATIONS – Form 6-K ….

Posted: Fri, 05 May 2023 10:51:04 GMT [source]

A rise in the money supply will reveal its effect by decreased interest rates and price values of commodities and services. Whereas a decrease in money supply will result in increased interest rates, price values with a coupled increase in banks’ reserves. Understanding the fundamentals of money supply and money demand helps get an idea regarding the country’s financial status and the fluidity of the country’s currency. In this section, we shall talk about the supply of money, its meaning, components, and the various methods that are involved in the money supply. Deposits are a crucial and very cheap source of funding for banks which make money by lending to their customers at higher rates than their cost of funding. So the name of the game is to keep “deposit costs” down while attracting enough deposits to lend out.

Thus money facilitates the formation of capital markets and the work of financial intermediaries like Stock Exchange, Investment Trust and Banks. Money is the link which connects the values of today with those of the future. It has become possible because value of money is stable and it has general acceptability and durability. Normally, the bank pays a nominal amount of interest on deposits made through these accounts. A current account is a bank account in which you can retrieve cash for everyday use without notice.

Which category of the money supply includes deposits in money market mutual funds quizlet?

The demand deposits are a part of commercial banks and are used as a non-confidential fund. These accounts are considered money when included in the economy of a country. Such deposits’ working mechanism is similar to that of a checking account where withdrawals from the fund can be made without notice.

They are widely why are demand deposits considered as money class 10 as a means of payment, along with the currency, thus they aqre considered as money. Every loan agreement specifies an interest rate which the borrower must pay to the lender along with the repayment of the principal amount. They can just discuss and then take decisions where majority agree. With the passage of time the bank submits the information regarding lending and interest rates etc. The higher cost of borrowing represents that a major proportion of the earning of the borrowers is used to repay the loans and due to which nothing has been left for their own. Few of them said that they borrow money from relatives and friends as there is low rate of interest required and sometimes no rate of interest as well.


The Demand Deposits are the deposits that are payable on-demand or on call. In other words, such deposits can be withdrawn by the depositor as and when required. Since demand deposits are always available on-demand, they are chequable deposits i.e. cheques can be issued against such deposits. Instant demand deposits offer higher liquidity and are a quick and highly effective source of money for individuals and businesses.

The sector still meets only about half of the total credit needs of the rural people. “The rich households are availing cheap credit from formal lenders whereas the poor households have to pay a heavy price for borrowing.” Comment. Describe the importance of formal sources of credit in the economic development. 85% of loans taken by the poor households in the urban areas are from informal sources. Informal lenders such as moneylenders, on the other hand, know the borrowers personally andhence are often willing to give a loan without collateral.


Current account holders generally use these deposits to meet their daily needs. However, there may be a maximum limit on deposits withdrawn from these accounts, specified as the daily limit of the account holder’s account balance. Mention the characteristic of the formal and informal sources of credit in India. First of all he needs to have collateral or an asset through which guarantee could be provided of his loan.

Banks and cooperatives should increase facility of providing loans so that dependence on informal sources of credit reduces. Describe the bad effects of informal sources of credit on borrowers. A person obtains credit to meet the working capital needs of production. How do demand deposits have the essential features of money? However, a country’s currency is said to have an inconvertible paper money standard if it is not convertible in gold or silver. Thus, it is conventional to describe a country’s monetary system in terms of its standard money, which serves as the primary source of supply.

However, the moneylenders charge very high rates of interest, keep no records of the transactions and harass the poor borrowers. Informal lenders like moneylenders know the borrower personally and hence, are often willing to give a loan without a collateral. Bank loans require proper documents and a collateral. Absence of collateral is one of the major reasons which prevents the poor from getting bank loans. If a person has to make a payment to his or her friend and writes a cheque for a specific amount, this means that the person instructs his bank to pay this amount to his friend.

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