Economics Part B

Table of Contents

Internal infusion

Internal infusion  – Explained

Any change in the amount of money the source of which is not directly from the central bank. The causes of an internal infusion are mainly:

  1. Change in preferences of the public regarding the way in which is wants to split its money between cash and bank deposits. As the preference for deposits increases, an increase will be recorded in the quantity of money.

  2. Changes in the Bank of America reserve ratio. A reduction in the reserve ratio increases the quantity of money, and an increase in the reserve ratio reduces the quantity of money.

A positive internal infusion reflects an increase in the quantity of money, and negative internal infusion reflects a decrease in the quantity of money.