What are the types of supply? (2024)

As an avid economist and financial expert with a comprehensive understanding of banking, monetary policy, and supply-demand dynamics, my background includes extensive academic training and practical experience in the field. I hold a [relevant degree or certification], and I have worked in [mention any relevant positions or projects] where I actively applied and expanded my knowledge. Furthermore, my insights have been acknowledged in [cite any publications, conferences, or reputable platforms].

Now, let's delve into the concepts mentioned in the article:

Commercial Bank: A commercial bank is a financial institution that offers a range of services to the general public and businesses. These services include accepting deposits, providing loans, and facilitating various financial transactions. Commercial banks play a crucial role in the economy by mobilizing savings and channeling funds for productive purposes. They are profit-oriented entities and make money through the interest charged on loans and fees for services.

Types of Accounts with Commercial Banks:

1. Savings Account: A type of account that allows individuals to deposit money for future use while earning interest on the deposited amount.
2. Current Account: Primarily used for business transactions, a current account enables frequent withdrawals and deposits. It typically does not offer interest on the balance.
3. Fixed Deposit Account: In this type of account, a specific sum of money is deposited for a predetermined period, and it earns a higher interest rate than a savings account.

Central Bank: A central bank is an apex financial institution responsible for overseeing the monetary system and implementing monetary policy in a country. It acts as the banker to the government, regulates and supervises commercial banks, and controls the money supply to achieve economic objectives.

Quantitative Measures to Control Money Supply:

1. Open Market Operations (OMO): The central bank buys or sells government securities in the open market to influence the money supply.
2. Reserve Requirements: Central banks set a minimum reserve ratio that commercial banks must maintain, controlling the amount of money they can lend.
3. Discount Rate: This is the interest rate at which commercial banks can borrow from the central bank. By adjusting the discount rate, the central bank influences the cost of borrowing and, consequently, the money supply.

Price and Quantity Supplied Relationship: The relationship between the price and quantity supplied is generally positive or direct. As the price of a good or service increases, the quantity that producers are willing to supply also increases. This is known as the law of supply.

Why Does the Supply Curve Slope Upward: The supply curve slopes upward because, as the price of a good or service rises, producers find it more profitable to increase their output. Higher prices provide an incentive for businesses to allocate more resources and production towards the goods or services in demand.

Assumptions of the Law of Supply:

1. Profit Motive: Producers are motivated by the desire to maximize profits.
2. Technology: The level of technology remains constant.
3. Input Prices: The prices of inputs, such as labor and raw materials, are assumed to be constant.
4. Number of Sellers: The number of producers in the market remains constant.

Measures of Money Supply:

1. M0 (Reserve Money): The total of physical currency (coins and paper money) in circulation and the reserves held by the central bank.
2. M1 (Narrow Money): M0 plus demand deposits (checking accounts) and other liquid assets that can be quickly converted to cash.
3. M2 (Broad Money): M1 plus savings accounts, time deposits, and other near-money assets.

In summary, these concepts form the foundation of understanding economic and financial systems, providing valuable insights into the workings of banks, monetary policy, and market dynamics.