We can begin the fictional bank with deposits or liabilities equal to ₹1,000. This could be due to Ms. Sharon depositing ₹1,000 in the bank. Let this bank deposit be the same amount with the Reserve Bank of India as reserves. The following table represents its balance sheet.                    Â
| Dr. |
Cr. |
||
| Assets | Liabilities | ||
| Reserves | ₹ 1,000 | Deposits | ₹ 1,000 |
| Net Worth | ₹ 0 | ||
| Total | ₹ 1,000 | Total | ₹ 1,000 |
If we presume that there is no currency in circulation, then the total money supply in the economy will be equal to ₹1,000.
M1 = Currency + Deposits = 0 + 1,000 = 1,000
The mentioned concept explains in detail about the balance sheet of a fictional bank. To know more about such interesting concepts, stay tuned to BYJU’S.
Also check:Â
Comments