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

Control of the money supply

Economic effects of the money supply

Measurement of the money supply

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degree of liquidity, ranging from notes and coins (which are completely liquid) to those bank deposits that cannot be withdrawn until after a waiting period.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