Money Supply (redirected from Increase in money supply)

Money supply

• M1-A: Currency plus demand deposits.
• M1-B: M1-A plus other checkable deposits.
• M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.
• M3: M-2 plus large time deposits and term repos.
• L: M-3 plus other liquid assets.

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Money Supply

A measure of the total amount and value of money in an economy. There are various ways of calculating the money supply. The most conservative includes only currency in circulation and instruments that can be converted to currency on demand (e.g. the amount in a checking account). Other calculations are much broader and include comparatively illiquid assets, such as money market funds. Central banks control the money supply in their own countries. See also: M0, M1, M2, M3, M4.

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money supply

The amount of money in the economy. Since the money supply is considered by many to be a critical element in determining economic activity, the financial markets attach great importance to Federal Reserve reports of changes in the supply. For example, consistently large increases in the money supply bring fears of future inflation. There are a variety of measures of the supply of money depending on how strictly it is defined. Also called money stock. See also M1, M2, M3, monetarism.

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Money supply. The money supply is the total amount of liquid or near-liquid assets in the economy.

The Federal Reserve, or the Fed, manages the money supply, trying to prevent either recession or serious inflation by changing the amount of money in circulation.

The Fed increases the money supply by buying government bonds in the open market, and decreases the supply by selling these securities.

In addition, the Fed can adjust the reserves that banks must maintain, and increase or decrease the rate at which banks can borrow money. This fluctuation in rates gets passed along to consumers and investors as changes in short-term interest rates.

The money supply is grouped into four classes of assets, called money aggregates. The narrowest, called M1, includes currency and checking deposits. M2 includes M1, plus assets in money market accounts and small time deposits.

M3, also called broad money, includes M2, plus assets in large time deposits, eurodollars, and institution-only money market funds. The biggest group, L, includes M3, plus assets such as private holdings of US savings bonds, short-term US Treasury bills, and commercial paper.

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Money Supply

What Does Money Supply Mean?

The entire quantity of bills, coins, loans, credit, and other liquid instruments circulating in a country's economy.

Investopedia explains Money Supply

The money supply is divided into multiple categories—M0, M1, M2, and M3—in accordance with the type and size of account in which the instrument is kept. The money supply is important to economists who try to understand how policies (monetary policies) will affect interest rates and growth.

Related Terms:
• Cash and Cash Equivalents—CCE
• Discount Rate
• Fiscal Policy
• Inflation
• Monetary Policy