Money Supply and Demand

The Fed has the influence to change concentration rates. Manipulating concentration rates helps control the offered money provide. If interest rates are high, customers may prefer to save money rather than spend it, increasing the available treasury the commercial banks have to work with. Yet the banks, who must pay the attention on these outstanding deposits, must find clientele who want to make use of funds so that the bank can make enough awareness proceeds to cover depositor attention expenditure and, hopefully, have finances left over in the appearance of profits.

Awareness duty also affects that require for money. Economic motion can be viewed as a series of transactions, where money is the vehicle on which these transactions are based. A great deal of economic activity, or a high number of transactions, increases require for money. For example, if the number of new homes being built increases, the number of mortgage transactions increases. This can also lead to an increase in borrowing by construction companies to buy more equipment. Wood and textile suppliers may also borrow to expand their operations.  Thus the original transaction, the construction of a new home, leads to many further transactions that necessitate money, thereby increasing the demand for money.