Money Supply is the total amount of money in circulation within an economy at a given point in time. It includes currency in circulation, demand deposits, and other liquid assets held by the public.
Money supply is a term used to describe the total amount of money in circulation in an economy at a given time. It is an important economic indicator that is used to measure the health of an economy and to determine the level of economic activity. Money supply is typically measured by the amount of currency in circulation, as well as the amount of deposits held in banks and other financial institutions.
The money supply is divided into two categories: M1 and M2. M1 is the most liquid form of money and includes currency in circulation, traveler’s checks, and demand deposits. M2 is a broader measure of money supply and includes M1 plus savings deposits, time deposits, and money market mutual funds.
The Federal Reserve, or the central bank of the United States, is responsible for controlling the money supply. The Federal Reserve can increase or decrease the money supply by buying or selling government securities. When the Federal Reserve buys securities, it increases the money supply by creating new money. When it sells securities, it decreases the money supply by taking money out of circulation.
The Federal Reserve also uses the money supply to influence interest rates. When the money supply is increased, interest rates tend to fall, making it easier for businesses and consumers to borrow money. When the money supply is decreased, interest rates tend to rise, making it more difficult for businesses and consumers to borrow money.
The money supply is an important economic indicator that is used to measure the health of an economy and to determine the level of economic activity. It is also used by the Federal Reserve to influence interest rates and to control the amount of money in circulation. By understanding the money supply, economists and policy makers can better understand the current state of the economy and make informed decisions about economic policy.