Examples of money supply in the following topics:
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- In addition to the commonly used M1 and M2 aggregates, several other measures of the money supply are used as well.
- In addition to the commonly used M1 and M2 aggregates, there are several other measurements of the money supply that are used as well .
- It is M2 – time deposits + money market funds.
- The different forms of money in the government money supply statistics arise from the practice of fractional-reserve banking.
- The measures of the money supply are all related, but the use of different measures may lead economists to different conclusions.
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- In a economy, equilibrium is reached when the supply of money is equal to the demand for money.
- Equilibrium is reached when the supply of money is equal to the demand for money.
- Political gain: both monetary and fiscal policies can affect the money supply and demand for money.
- In the case of money supply, the market equilibrium exists where the interest rate and the money supply are balanced.
- Without external influences, the interest rate and the money supply will stay in balance.
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- Changes in a country's money supply shifts the country's aggregate demand curve.
- The aggregate demand curve assumes that money supply is fixed.
- Contractionary monetary policy decreases the money supply in an economy .
- Expansionary monetary policy increases the money supply in an economy.
- In addition, the increase in money supply would lead to movement up along the aggregate supply curve.
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- M2 is a broader measure of the money supply than M1, including all M1 monies and those that could be quickly converted to liquid forms.
- There is no single "correct" measure of the money supply.
- M2 is one of the aggregates by which the Federal Reserve measures the money supply .
- This is because M2 includes the money market account in addition to all the money counted in M1.
- Historically, the Federal Reserve has measured the money supply using the aggregates of M1, M2, and M3.
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- M1 captures the most liquid components of the money supply, including currency held by the public and checkable deposits in banks.
- The Federal Reserve measures the money supply using three main monetary aggregates: M1, M2, and M3.
- M1 is the narrowest measure of the money supply, including only money that can be spent directly.
- The M1 money supply increases by $810 when the loan is made (M1=$1,710).
- This creates promise-to-pay money from a previous promise-to-pay, inflating the M1 money supply (M1=$2,439).
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- Instead, most economists agree that in the long run, inflation depends on the money supply.
- Thus, increasing the supply of money increases the price levels.
- In mathematical terms, the quantity theory of money is based upon the following relationship: M x V = P x Q; where M is the money supply, V is the velocity of money, P is the price level, and Q is total output.
- Thus, an increase in the money supply requires an increase in the price level (inflation).
- Instead, for example, an increase in the money supply could boost total output or cause the velocity of money to fall.
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- Monetary policy is the process by which a monetary authority controls the money supply, often to produce stable prices and low unemployment.
- Monetary policy is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it.
- In response, the monetary authority may reduce the money supply and thereby raise the interest rate.
- The graph shows the relationship between the money supply and the inflation rate.
- By controlling the money supply, monetary authorities hope to influence the rate of inflation.
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- While the demand of money involves the desired holding of financial assets, the money supply is the total amount of monetary assets available in an economy at a specific time.
- Monetary policy also impacts the money supply.
- Expansionary policy increases the total supply of money in the economy more rapidly than usual and contractionary policy expands the supply of money more slowly than normal.
- In the United States, the Federal Reserve System controls the money supply.
- The Fed can attempt to change the money supply by affecting the reserve requirement and through other monetary policy tools .
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- In reality, it is very unlikely that the money supply will be exactly equal to reserves times the money multiplier.
- During this time, the relationship between reserves, reserve requirements, and the money supply was relatively close to that predicted by economic theory.
- The presence of these excess reserves suggests that the reserve requirement ratio is not exerting an influence on the money supply.
- Recall that when cash is stored in a bank vault it is included in the bank's supply of reserves.
- When people hold more cash, the total supply of reserves available to banks goes down and the total money supply falls.
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- The money multiplier measures the maximum amount of commercial bank money that can be created by a given unit of central bank money.
- When you think of money, what you probably imagine is commercial bank money.
- The above equation states that the total supply of commercial bank money is, at most, the amount of reserves times the reciprocal of the reserve ratio (the money multiplier) .
- Theoretically, then, a central bank can change the money supply in an economy by changing the reserve requirements.
- A 10% reserve requirement creates a total money supply equal to 10 times the amount of reserves in the economy; a 20% reserve requirement creates a total money supply equal to five times the amount of reserves in the economy.