Money Supply

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The money supply is the economy's stock of those assets that can be readily exchanged for goods and services.

Determinants of the supply of money[edit]

Control of the money supply[edit]

Economic effects of the money supply[edit]

Measurement of the money supply[edit]

There are several different measures of the money supply, each of which denotes a different degree of liquidity, ranging from notes and coins (which are completely liquid) to those bank deposits that cannot be withdrawn until after a waiting period.

In the United States, three categories of the money supply are defined as

• M1 Currency held by the public and demand deposits held in the commercial banks;
• M2 Currency held by the public and demand and time deposits held in the commercial banks;
• High-powered money: Currency held by the public plus bank vault cash plus bank deposits at Federal Reserve banks.

In the United Kingdom three categories of the money supply are defined as

• M0 is known as the "monetary base" and consists of cash in circulation, cash in banks’ tills and banks’ operational deposits held at the central bank;
• M1 consists of cash in circulation, cash in banks’ tills and banks’ operational deposits held at the central bank plus demand (current account) deposits held in the commercial banks;
• M4 is known as "broad money", and consists of cash, current account deposits in banks and other financial institutions, savings deposits and time-restricted deposits.

References[edit]