Supply-Side Factors

The factors that influence the formation of goods and services in an economy are termed supply-side factors. Many countries use the measure of supply-side factors to tackle the condition of depression or stagnation. The method has helped in the recovery of economies and employment generation. 

These economic failures can be averted by changing currency denominations to tackle inflation by fiscal policymakers of different countries. For example, countries worldwide have adopted deposit insurance mechanisms to safeguard depositors in the condition of bank failure. 

The Supply-Side Economics

Supply-side economics is a theory given to provide economic development methods. The theory highlights that an increase in production, in turn, boosts economic growth. The factors that influence production in an economy are capital, labour, entrepreneurship, and land properties. Supply-side factors in a fiscal policy of any country mainly focus on creating a market suitable for businesses and corporations.

The supply-side factors use monetary tools to achieve certain fiscal policy goals. Tax cuts and deregulation can be said to be these tools. This theory also explains that with the increase in production, corporations and companies hire more labourers, effectively increasing employment opportunities. The resultant employment creates more demand, effectively improving the economy.

Supply-Side Factors

Supply-side economics theory gives ways for boosting the supply chain in an economy. Policymakers use this method to increase and stabilise the economy and pull it out of a condition of stagnation. The supply-side factors can be described as the factors that influence the supply-side theory and its mechanism. 

The following supply-side factors influence the production in an economy:

• Lowering the tax rates for the companies and businesses
• Decreasing the regulations on the companies
• Promoting free trade among countries and foreign businesses

Denomination of Bank Notes

Currency denomination or the denomination of bank notes can simply be described as the face value of fiat money or currency bills issued by the central bank of a country. In India, for instance, the Reserve Bank supplies bank notes in denominations of 10, 20, 50, 100, 200, 500, and 2000. And the coins discharged by the RBI are also in denominations of 10 paise, 25 paise, 50 paise, 1 rupee, 2 rupees, and 5 rupees. 

Many times, countries may make changes in the denomination of bank notes. Such a change can be brought considering many factors such as:

• Introduction and circulation of new currency bills in the country
• Monetary tools to tackle inflation or hyperinflation, e.g., Venezuela, Zimbabwe, etc.
• When a currency union is formed by two or more countries, e.g., the European Union

Deposit Insurance

Also known as deposit protection, deposit insurance is a financial measure adopted by several countries to protect the depositor in a case when their respective banks fail to pay their debts and collapse. The deposit insurance mechanism is important and provides financial stability to depositors. The bank’s functioning allows it to lend the money deposited with them. In other words, a bank gives the deposited money in loans to different customers.

However, if borrowers fail to pay the loaned amount in the required time, the bank and the depositors may experience losses. When such a condition arises where a bank cannot obtain the borrowed amount, depositors may choose to withdraw their deposits from the bank quickly. This can cause a bank to fail. 

The deposit insurance mechanism protects the bank customers and banks from such a failure. In most countries, deposit insurance agencies are run by the governments. However, private entities may also provide deposit insurance services.

In India, the Deposit Insurance and Credit Guarantee Programme (DICGP) is run by the government to protect the depositors and secure their deposits through a clear mechanism.

Deposit Insurance and Credit Guarantee Programme (DICGP)

• This Act, which was formed in 1961, provides for the functioning of DICGP.
• The depositors of all the cooperative and commercial banks in India are under this programme.
• The programme also includes foreign banks that have functions in India.
• All the commercial and cooperative banks are required to register with the programme.
• This programme does not include the deposits of foreign governments, deposits of centre and state governments, inter-bank deposits, deposits of state cooperative banks, and deposits received outside India.

Conclusion

The supply-side economy is used to increase production and employment to stabilise the economy. And denomination of bank notes can be termed as a method used by many countries to face the condition of hyperinflation. When banks fail to obtain the lent money, they may face a bank failure situation. The deposit insurance mechanism has been developed to protect the depositors and their funds. The Deposit Insurance and Credit Guarantee Programme was launched to secure the depositors’ funds in India.