Business, Legal & Accounting Glossary
The money supply is the total amount of currency, checking deposits, and savings in the economy.
Money Supply is defined as the total quantity of coins, bills, credit, liquid instruments, and loans in the economy of a country. The money supply is categorized into different sections based on the size and kind of account in which it has been kept.
The money supply can be broken down into categories, including:
According to economists, the money supply plays an important role in exercising control over inflation. Stable or fixed money demand can lead to inflation.
In the context of money supply, MO refers to physical currency. MO includes assets and cash.M1 is used to indicate physical currency in addition to demand deposits. It is a liquid measure of the supply of money. Though it includes assets and cash, these can be readily converted into currency. M2 refers to small-time deposits along with M1 while M3 is indicative of large deposits and M2. M2 is an economic index that is used to predict inflation. M3 comes to include short-term repurchase agreements, large liquid assets, and institutional money-market funds.
The money supply is divided into narrow money and broad money. Monetary policies have a bearing on the money supply. Supply of money that is affected by such policies is known as narrow money. Broad money is defined as a supply of money on which monetary policies hardly make an impact.
Some important concepts that are related to money supply may be mentioned as below:
A liquidity squeeze is a situation where financial organizations are not willing to lend money from financial reserves at their disposal as they have concerns regarding the availability of money at short periods of time. This results in the rise of interbank rates and in particular the benchmark London Inter-Bank Offical Rate or LIBOR.
Monetary policy may be described as financial plans that are initiated by a central bank or a similar regulatory authority. Monetary policies play an important role in the amount and rate at which the money supply grows in a particular economy. Monetary policies also affect interest rates.
Money
Currency
Federal Reserve
Central bank
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This glossary post was last updated: 22nd November, 2021 | 0 Views.