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CBSE Class 12-commerce Answered

Explain the preference of the public to hold cash balances versus deposits in banks which influences the supply of money.

Asked by Topperlearning User | 18 Apr, 2016, 10:57: AM
Expert Answer

Influences on supply of money:

Currency deposit ratio (CDR) is the ratio of money held by the public in currency which they hold in bank deposits, cdr = CU/DD. During festival season, people tend to hold more cash and they convert deposits into cash to meet their expenses. Hence, CDR increases.

Reserve deposit ratio (RDR) is the proportion of the total deposits commercial bank keep as reserves. Banks hold certain portion of money that the people deposited in banks as reserve money and the rest of the money was used to give out loan for investment projects.

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