What are the components of money supply?
The money supply is the total amount of money—cash, coins, and balances in bank accounts—in circulation. The money supply is commonly defined to be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments.
M1: Currency in circulation plus overnight deposits. M2: M1 plus deposits with an agreed maturity up to two years plus deposits redeemable at a period of notice up to three months. M3: M2 plus repurchase agreements plus money market fund (MMF) shares/units, plus debt securities up to two years.
M1 consists of coins and currency, checking accounts and traveler's checks. M2 is a more broad definition of money. M2 = M1 + small savings accounts, money market funds and small time deposits. M3 is even more broad and includes M2 + large time deposits, large money market funds and repurchase agreements.
M1 and M2 money are the two mostly commonly used definitions of money. M1 = coins and currency in circulation + checkable (demand) deposit + traveler's checks + saving deposits. M2 = M1 + money market funds + certificates of deposit + other time deposits.
The money supply is the total amount of money(currency+deposit money) present in an economy at a particular point in time. The standard measures to define money usually include currency in circulation and demand deposits.
M1, M2, M3 and M4. M1 = CU + DD. M2 = M1 + Savings deposits with Post Office savings banks. M3 = M1 + Net time deposits of commercial banks. M4 = M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates)
The money supply is the total amount of money—cash, coins, and balances in bank accounts—in circulation. The money supply is commonly defined to be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments.
A credit card is not a part of the M1 or M2 money supply, and as a matter of fact, is not part of the money supply at all. This is because money supply is the aggregate value of monetary assets, and does not include liabilities. Credit card balance represents a liability, not an asset.
A country with little money in circulation is likely to experience recession and decreased government revenue. With little money in circulation, consumers will choose to save and minimize their spending. This reduces the consumption rate in the economy and the production level.
The Mesopotamian civilization developed a large-scale economy based on commodity money. The shekel was the unit of weight and currency, first recorded c. 2150 BC, which was nominally equivalent to a specific weight of barley that was the preexisting and parallel form of currency.
How to control money supply?
Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity.
A liquidity trap is a contradictory situation in which interest rates are very low but savings are high. In other words, consumers and businesses are holding onto their cash even with the incentive of interest rates at or close to 0%.
Government backs the money supply.
In the United States, the money supply is backed up by the government, which guarantees to keep the value of the money supply relatively stable. Such a guarantee depends mostly upon the effectiveness and management of silks of the government with regards to the money supply.
Gold isn't any form of money in today's world. It has a value, but cannot be used as a currency, or a substitute for money. This is because it cannot be considered to be similar to notes, coins and deposits. Thus, gold does not fall in any of the money categories - it is neither M1 and M2, nor M3.
The Federal Reserve System is not "owned" by anyone. The Federal Reserve was created in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.
M1 is a narrow measure of the money supply that includes currency, demand deposits, and other liquid deposits, including savings deposits. M1 does not include financial assets, such as bonds.
If the Fed, for example, buys or borrows Treasury bills from commercial banks, the central bank will add cash to the accounts, called reserves, that banks are required keep with it. That expands the money supply.
Traveler's checks are also a component of M1, but are declining in use. M2 includes all of M1, plus savings deposits, time deposits like certificates of deposit, and money market funds.
M3 Ultra provides the most performance of any Mac chip, while maintaining the industry-leading power-efficiency of Apple silicon. It features up to a 32-core CPU with 24 performance cores and eight efficiency cores, delivering up to 1.5x the performance of M2 Ultra, and up to 1.8x that of M1 Ultra.
The formula for money supply is MS = (MB x MM). MB, or monetary base, is the amount of money in circulation or available to be circulated.
Is M2 a Narrow Money?
M1 and M2 are narrow money. M3 and M4 are known as broad money. These gradations are in decreasing order of liquidity. M1 is the most liquid and easiest for transactions whereas M4 is the least liquid of all.
- M1= C+ DD+ OD. ...
- M2 = M1+ deposits with the post office saving bank account.
- M3 = M1 + net time deposits with the commercial banks.
On the other hand, if there is more money in circulation but the same level of demand for goods, the value of the money will drop. This is inflation—when it takes more money to get the same amount of goods and services (see “Inflation: Prices on the Rise”).
The most important feature of fiat money is the stability of its value, unlike commodity-based money like gold, copper, and silver. The use of fiat money became popular in the 20th century as governments and banks moved in to protect their economies from the frequent busts of the business cycle.
Gold is not counted in M1, M2, or M3. In the modern world, gold is no longer used as a common currency.
