Definition of 'Money Supply'
The Money Supply is the total amount of money available in the economy at any point in time. The standard measures for defining money usually include currency in circulation and demand deposits.
The Money Supply influences price levels, inflation and the business cycle and as such is carefully watched by analysts and investors.
Categories of Money Supply:
- M0 - includes bank reserves. Also referred to as the monetary base, or narrow money.
- MB - is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits) are created and is traditionally the most liquid measure of the money supply.
- M1 - Bank reserves are not included in M1.
- M2 - represents money and "close substitutes" for money. M2 is a broader classification of money than M1. Economists use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions. M2 is a key economic indicator used to forecast inflation.
- M3 - Since 2006, M3 is no longer published or revealed to the public by the US central bank. There are still estimates produced by various private institutions.
- MZM - Money with zero maturity. It measures the supply of financial assets redeemable at par on demand.
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