Other Measurements of the Money Supply

In addition to the commonly used M1 and M2 aggregates, several other measures of the money supply are used as well.

Learning Objective

Explain how the money supply is measured

Key Points

M0 is a measure of all the physical currency and coinage in circulation in an economy.
MB is a measure that captures all physical currency, coinage, and Federal Reserve deposits (special deposits that only banks can have at the Fed).
The different forms of money in the government money supply statistics arise from the practice of fractional-reserve banking. Whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of money is created, which makes up the non-M0 components in the M1-M3 statistics.

Terms

M0
The amount of coin and banknotes in circulation.
MB
The portion of the commercial banks' reserves that is maintained in accounts with their central bank plus the total currency circulating in the public.

Full Text

In addition to the commonly used M1 and M2 aggregates, there are several other measurements of the money supply that are used as well . More specifically:

Euro Money Supply

The measures of the money supply are all related, but the use of different measures may lead economists to different conclusions.

M0: The total of all physical currency including coinage. M0 = Federal Reserve Notes + US Notes + Coins .
MB: Stands for "monetary base," referring to the base from which all other forms of money are created. MB is the total of all physical currency plus Federal Reserve Deposits (special deposits that only banks can have at the Fed). MB = Coins + US Notes + Federal Reserve Notes + Federal Reserve Deposits.
M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits.
M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).
M3: M2 + all other certificates of deposit (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.
M4-: M3 + commercial paper.
M4: M4- + treasury bills (or M3 + commercial paper + T-bills)
MZM: "Money Zero Maturity" is one of the most popular aggregates in use by the Fed because its velocity has historically been the most accurate predictor of inflation. It is M2 – time deposits + money market funds.
L: The broadest measure of liquidity that the Federal Reserve no longer tracks. M4 + Bankers' Acceptance.

The different forms of money in the government money supply statistics arise from the practice of fractional-reserve banking. Fractional-reserve banking is the practice whereby a bank retains only a portion of its customers' deposits as readily available reserves from which to satisfy demands for withdrawals. Whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of money is created. This new type of money is what makes up the non-M0 components in the M1-M3 statistics.

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