Why Jamal's Deposit of $1,000 in Cash Does Not Affect the Money Supply

Did the money supply change when Jamal made this deposit?

No, the money supply does not change when Jamal deposits $1,000 in cash in Sparty Bank and it is placed in the bank's vault. But why?

When Jamal deposits $1,000 in cash in Sparty Bank, the money supply remains unaffected. This is because the money supply consists of different components, such as M1, which includes currency in circulation (cash outside banks) and demand deposits (checkable deposits) held by individuals and businesses at banks.

It's important to understand that when Jamal makes the cash deposit, the money is already part of the currency in circulation. Placing the cash in the bank's vault is simply a transfer of cash from Jamal to the bank. This transfer does not alter the overall money supply.

The bank may utilize Jamal's deposit to provide loans or engage in other activities, but this action does not have an immediate impact on the money supply. Therefore, the money supply remains constant despite Jamal's deposit.

For further information on cash deposits and their impact on the money supply, please click here.