Legal Definitions - money supply

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.