Q.What are the determinants of Money Supply ?

Money supply depends on the reserve ratio, the amount of high-powered money (reserves), the public's currency-deposit ratio, and banks' credit-creation behaviour.

Money supply is the total quantity of money in circulation with the public at a given time. Its size is governed by the following determinants:

1. Required reserve ratio (CRR and SLR) — the fraction of deposits banks must keep as reserves; a lower ratio allows more credit creation and a larger money supply.
2. High-powered money / bank reserves — the total of currency with the public and reserves of banks; a larger base allows a larger money supply through the money multiplier.
3. Currency-deposit ratio — the public's preference for holding cash relative to bank deposits; more cash holding reduces the money banks can lend. …