"The money supply (or money stock) refers to the total volume of money held by the public at a particular point in time."
Explanation of the various types of money supply and how they impact the economy.
Money Supply Definition: This is a fundamental concept in monetary policy as it refers to the total amount of money circulating in an economy at any given time.
Types of Money Supply: There are different types of money supply such as M0, M1, M2 etc. Each type includes different types of financial assets, from physical currency and coins to checking accounts, time deposits, etc.
Measures of Money Supply: These are indices that track the various types of money supply. They are frequently used in macroeconomic analysis to understand the health and direction of an economy.
Monetary Policy: Monetary policy refers to the actions taken by a central bank or other monetary authority to influence the supply, availability, and cost of money.
Central Banks: These institutions, such as the Federal Reserve, are responsible for implementing monetary policy, including managing the money supply, interest rates, and exchange rates.
Open Market Operations: The central bank buys or sells assets in the open market in order to influence the money supply, interest rates, and other macroeconomic factors.
Reserve Requirements: This is the percentage of total deposits that banks must hold in reserve, which also affects the money supply.
Discount Rate: The discount rate is the rate charged by the central bank to commercial banks for short-term loans, which affects the interest rate and money supply.
Quantitative Easing: A monetary policy strategy that involves buying government bonds or other securities in order to lower long-term interest rates and stimulate economic growth.
Inflation: The increase in the general price level of goods and services over time, which can have an impact on monetary policy decisions related to money supply.
Economic Indicators: These are data points used to track the health of an economy over time, including GDP, unemployment, consumer price index, and more. They may impact monetary policy by influencing decisions related to money supply.
Exchange Rates: The value of one currency in relation to another, which can be influenced by monetary policy decisions related to the money supply.
M0 (Base money or High-powered money): It is the physical currency in circulation (notes and coins) and reserves held by commercial banks with the central bank.
M1 (Narrow Money): It includes all physical currency in circulation (notes and coins) and demand deposits in the commercial banks.
M2 (Broad Money): It includes M1 plus time deposits (accounts that require a notice period before withdrawal) and savings deposits.
M3 (Broadest Money): It includes M2 plus other long-term deposits, institutional money market funds, and repurchase agreements.
M4 (Real Money): It includes M3 plus assets such as shares, bonds, and property.
MZM (Money Zero Maturity): It is a measure of the liquid money supply, which includes cash, deposits, and other highly liquid assets.
L (Liquidity Aggregate): It includes the narrow definition of money (M1) and all time deposits, savings deposits, and money market funds held by households, non-financial businesses, and non-money market financial institutions.
MB (Monetary Base): Also known as the monetary base, it is the total amount of base money in circulation, including currency and reserves held by commercial banks.
M Prime (Prime Money): It is an aggregate of M3, commercial papers, and other short-term commercial debts.
MCA (Money with Call Accounts): It includes money in demand deposits and in call accounts that can be withdrawn on demand.
MO (Quasi Money): It includes all highly liquid assets, such as bonds and savings deposits, except for physical currency in circulation.
Velocity of Money: It is a measure of how often money changes hands in the economy, calculated by dividing the nominal GDP by the money supply.
"Standard measures usually include currency in circulation (i.e. physical cash) and demand deposits (depositors' easily accessed assets on the books of financial institutions)."
"Money supply data is recorded and published, usually by the national statistical agency or the central bank of the country."
"Empirical money supply measures are usually named M1, M2, M3, etc., according to how wide a definition of money they embrace."
"Even for narrow aggregates like M1, by far the largest part of the money supply consists of deposits in commercial banks."
"Currency (banknotes and coins) issued by central banks only makes up a small part of the total money supply in modern economies."
"The public's demand for currency and bank deposits and commercial banks' supply of loans are consequently important determinants of money supply changes."
"These decisions are influenced by central banks' monetary policy, not least their setting of interest rates."
"The money supply is ultimately determined by complex interactions between non-banks, commercial banks, and central banks."
"According to the quantity theory supported by the monetarist school of thought, there is a tight causal connection between growth in the money supply and inflation."
"Several major central banks during that period attempted to control the money supply closely, following a monetary policy target of increasing the money supply stably."
"The strategy was generally found to be impractical because money demand turned out to be too unstable for the strategy to work as intended."
"The money supply has lost its central role in monetary policy."
"Instead, they focus on adjusting interest rates, in developed countries normally as part of a direct inflation target."
"Money supply measures may still play a role in monetary policy, however, as one of many economic indicators that central bankers monitor."
"...to judge likely future movements in central variables like employment and inflation."
"The precise definitions vary from country to country, in part depending on national financial institutional traditions."
"Money supply data is recorded and published, usually by the national statistical agency or the central bank of the country."
"The public's demand for currency and bank deposits, and commercial banks' supply of loans are...important determinants of money supply changes."
"Instead, they focus on adjusting interest rates, in developed countries normally as part of a direct inflation target which leaves little room for a special emphasis on the money supply."