Final answer:
Demand deposits are a type of bank deposit available for immediate withdrawal, like checking accounts, and are a key part of the M1 money supply. Depository institutions accept demand deposits and use them to make diversified loans. The term demand deposits is synonymous with checkable deposits. D. Demand deposits
Step-by-step explanation:
Deposits that are held in banks and are available by making a cash withdrawal or writing a check are known as demand deposits. These are a type of deposit also referred to as checkable deposits because they give the account holder the flexibility to access their funds 'on demand'. Checking accounts are a common form of demand deposits, where the bank must allow the account holder to withdraw their money or use it for payments at any time, such as through writing a check or using a debit card. This type of deposit is crucial for day-to-day transactions as it enables people to hold money for the purpose of buying things conveniently.
Depository institutions are financial entities that accept these money deposits and then use these funds to make loans. These institutions often diversify their loans or investments across a variety of firms to reduce the risk of being adversely affected by unfavorable events at one or a few firms. The concept of demand deposits is a key component of the M1 money supply, which is a categorization of money that also includes coins and currency in circulation. The M1 money supply is assessed daily by the Federal Reserve System. It's important to note that, while savings deposits are now included in M1, they are not directly checkable and represent a different type of deposit.