Money Supply 2020-05-31 08:00:00

Money Supply

Money supply is a snapshot of the amount of currency and liquid assets in an economy. Central banks control the money supply. When an economy is growing slowly, its central bank increases the money supply to provide stimulation. When the economy is growing too fast, the central bank will decrease the money supply to slow it down and decrease inflation. The method central banks use to control the money supply is the increase/decrease of interest rates, a part of monetary policy.

Money supply has five different subgroups — M0, MB, M1, M2, and M3. M0 is hard currency in circulation. MB is M0 + hard currency held in bank reserves. M1 is M0 + checking accounts. M1 is a common measure of money supply. M2 is M1 + savings + CDs. M3 includes larger deposits + institutional money market funds + other larger liquid assets.

 


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