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Simple English definitions for legal terms
money supply
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A quick definition of money supply:
Money supply: The amount of money that is available in the economy. This includes all the physical currency, such as coins and bills, as well as the money that is held in bank accounts. There are different measures of money supply, such as M1, M2, and M3, which include different types of money and have different levels of liquidity. Essentially, the money supply is the total amount of money that people and businesses can use to buy goods and services.
A more thorough explanation:
Money supply refers to the total amount of money that is in circulation within an economy. This includes all forms of money, such as cash, coins, and bank deposits.
There are different measures of money supply, including:
- M1: This includes the most liquid forms of money, such as cash, checking accounts, and traveler's checks.
- M2: This includes M1 plus savings accounts, money market accounts, and other time deposits.
- M3: This includes M2 plus large time deposits and institutional money market funds.
For example, if the total amount of money in circulation in an economy is $10 trillion, then the money supply is $10 trillion. This money can be used for various purposes, such as buying goods and services, investing, or saving.
The money supply is an important factor in determining the overall health of an economy. If there is too much money in circulation, it can lead to inflation, as the value of each individual unit of currency decreases. On the other hand, if there is too little money in circulation, it can lead to deflation, as the value of each individual unit of currency increases.