COPY: Money Supply Quiz

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.