Why are demand deposits considered as money?
Demand deposits are considered as money because they share the essential features of money. The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash.
Since demand deposits are accepted widely as a means of payment along with currency, they constitute money in the modern economy. A cheque is a paper instructing the bank to pay a specific amount from the person's account to the person in whose name the cheque has been issued. This allows transactions to be completed without any payment of cash.
Explanation
The textbook explains that demand deposits share the essential characteristics of money, specifically the function of being a medium of exchange. The key points are: (1) Cheques against demand deposits enable direct settlement of payments without cash, and (2) Demand deposits are widely accepted as a means of payment along with currency. Together, these features make demand deposits equivalent to money in the modern economy.