Bank Deposit Accounts

The first function of commercial bank is to receive deposits. Usually, the customers can deposit their money in several kinds of bank accounts. Some of them are as follows:

1) Fixed Deposit Account: This account is opened for a definite period of time without the expiry of which the amount cannot be withdrawn. The rate of interest is higher than that of savings account. The greater the period for which money is deposited the higher the interest rate is offered.

2) Savings Account: It was introduced by the banks for those who have low incomes and small savings. Those who open it include students, salaried persons, and small traders.

3) Current Account: It is the most popular form of bank account. Current account is operated by businessman. In this account the customer is authorized to deposit or withdraw money any time in or from the bank. The bank does not pay any interest.

Economic Goals

Economic policies are made to achieve following economic goals.
• It means to produce better goods and services and to develop a higher standard of living of the people.
• To provide suitable jobs for all citizens who are willing and able to work.
• To achieve maximum fulfillment of wants, using available productive resources.
• To avoid large upswings in general price level that is to avoid inflation and deflation in the economy.
• To guarantee that business, workers and consumers have a high degree of freedom in their economic activities.
• To ensure that no group of citizens faces poverty while most enjoy abundance of wealth.
• To provide for those who are disabled, chronically ill, aged, laid off from jobs or otherwise unable to ear minimum levels of income.
• To have overall balance of payments in international trade and financial transactions.

How Credit is Created

Now suppose, a person deposits $1000 with a bank, ten percent of which will go to the central bank as such reserve requirement. Hence the commercial bank is left with $900 to be used for advancing loans. The party ‘A’ that borrows this $900 will either buy goods from or make payment to the other party B. The party B will receive the cheque for $900 and deposit it its account with the same commercial bank. Now the bank receives the deposit of $900. Ten percent of this amount ($90) will as usual go to the central bank and the rest of the amount ($810) will be utilized in advancing loans. At this stage the bank has net deposit of $1710 ($900+ $810), though the original deposit is $1000. In this fashion the credit money will go on increasing at every transaction. If the original deposit is $1000 the extent of credit expansion will be $10,000.

Economic Wants

Economic wants means desire for goods and services. The attempt to satisfy wants forms the basis of all economic activity. A desire of a person cannot become want until he has money to purchase and is also willing to give away for that good. Economic wants are fulfilled by consumptions of goods and services.

Necessities of life are basic needs of a person, without which our life is not possible. These include ordinary food, clothing and shelter. Comforts of life make life easy and comfortable. These wants increase efficiency of a person. These wants include better food, comfortable bed and transport facilities. Luxuries of life are neither necessary nor they increase efficiency of a person. These wants include an expensive car, big bungalow etc. These wants are for pomp and show and for mental satisfaction of a consumer.

Economic wants are unlimited, after fulfilling one want another want comes up, hence there is no end to them. Wants once fulfilled, never ends, they are repeated again and again. Some wants are felt urgently than others. Some of them cannot be postponed while others can be postponed. Some wants can be fulfilled with the use of alternative goods.

Economic Policy

Economic policy and economic analysis are closely related. All economic policies are adopted on the basis of economic theories. The creation of policies to achieve specific goals is not a simple matter.

First step is to make a clear statement about economic goals. If we say that we want full employment, do we mean that everyone between 16 and 65 years of age should have a job? Or do we mean that everyone who wants to work should have a job? Therefore economic goals must be specific.

Next step is to formulate alternative policies to achieve the goal and determine the possible effects of each policy. This requires a detailed assessment of economic impact, benefits, costs and political feasibility of alternative policies.

After implementing policy we need to check how well it worked. Only through unbiased evaluation we can improve on economic policy. These policies are augmented at a more specific level by measures designed for industrial investment, research and development and to protect consumer’s interests.