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Questions and Answers
What does the money supply refer to in macroeconomics?
What does the money supply refer to in macroeconomics?
- Total volume of money held by the public at a particular point in time (correct)
- Total volume of money held by the government at a particular point in time
- Total volume of money exchanged in the stock market at a particular point in time
- Total volume of money held by financial institutions at a particular point in time
Who usually records and publishes money supply data?
Who usually records and publishes money supply data?
- National statistical agency or central bank (correct)
- Private financial institutions
- International monetary fund
- World Bank
Which measures are usually included in standard measures of money supply?
Which measures are usually included in standard measures of money supply?
- Stock market investments and real estate holdings
- Savings accounts and government bonds
- Corporate loans and credit card debt
- Currency in circulation and demand deposits (correct)
How are empirical money supply measures usually named?
How are empirical money supply measures usually named?
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What makes up the largest part of the money supply in modern economies?
What makes up the largest part of the money supply in modern economies?
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Study Notes
Money Supply in Macroeconomics
- The money supply refers to the total amount of money circulating in an economy, including physical cash, digital money, and other liquid assets that can be easily converted into cash.
Recording and Publishing Money Supply Data
- Central banks, such as the Federal Reserve in the United States, usually record and publish money supply data to monitor the economy's monetary conditions and inform monetary policy decisions.
Standard Measures of Money Supply
- Standard measures of money supply typically include:
- M0 (narrow money): physical cash, coins, and central banks' reserves
- M1 (narrow money + checking deposits): M0 + checking accounts, currency in circulation, and other checkable deposits
- M2 (broad money): M1 + savings deposits, money market funds, and other liquid assets
- M3 (broadest money): M2 + large time deposits, institutional money market funds, and other liquid assets
Naming Conventions for Money Supply Measures
- Empirical money supply measures are usually named with a letter (M) followed by a number (0, 1, 2, 3, etc.), indicating the breadth of the money supply being measured.
Composition of the Money Supply
- In modern economies, the largest part of the money supply is typically made up of commercial bank deposits, which are created through the fractional reserve banking system.
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