What Is Money? Are All the Components of M4 Really Money? Currency is the means of payment, so it is money. Sight deposits can be transferred from one person to another by writing a cheque or using a debit card, so sight deposits are money. Time deposits can easily be switched into sight deposits, so time deposits are money.
Monetary Financial Institutions Economic Benefits Provided by Monetary Financial Institutions All monetary financial institutions make a profit from the spread between the interest rate they pay on deposits and the interest rate at which they lend. Monetary financial institutions provide four services: Creating liquidity Pooling risk Lower the cost of borrowing Lower the cost of monitoring borrowers
Creating Deposits by Making Loans When a bank receives a deposit, its reserves increase by the amount deposited. But the bank doesn’t hold all of the deposit as reserves, it loans some of the amount deposited. These loans end up as deposits. The banking system as a whole can increase loans and deposits with no change in reserves. The increase in deposits is an increase in money. How Banks Create Money