Money supply

China M2 money supply vs USA M2 money supply
Comparative chart on money supply growth against inflation rates
M2 as a % of GDP
M2 as a percent of GDP

In macroeconomics, the money supply (or money stock) refers to the total volume of currency held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation (i.e. physical cash) and demand deposits (depositors' easily accessed assets on the books of financial institutions).[1][2] The central bank of a country may use a definition of what constitutes legal tender for its purposes.

Money supply data is recorded and published, usually by a government agency or the central bank of the country. Public and private sector analysts monitor changes in the money supply because of the belief that such changes affect the price levels of securities, inflation, the exchange rates, and the business cycle.[3]

The relationship between money and prices has historically been associated with the quantity theory of money. There is some empirical evidence of a direct relationship between the growth of the money supply and long-term price inflation, at least for rapid increases in the amount of money in the economy.[4] For example, a country such as Zimbabwe which saw extremely rapid increases in its money supply also saw extremely rapid increases in prices (hyperinflation). This is one reason for the reliance on monetary policy as a means of controlling inflation.[5][6]

  1. ^ Alan Deardorff. "Money supply," Deardorff's Glossary of International Economics
  2. ^ Karl Brunner, "money supply," The New Palgrave: A Dictionary of Economics, v. 3, p. 527.
  3. ^ The Money Supply – Federal Reserve Bank of New York. Newyorkfed.org.
  4. ^ Sysoyeva, Larysa; Bielova, Inna; Ryabushka, Luidmila; Demikhov, Oleksii (May 29, 2021). "Determinants of Management of Central Bank to Provide the Economic Growth: an Application of Structural Equation Modeling". Studies of Applied Economics. 39 (5). doi:10.25115/eea.v39i5.4803. ISSN 1697-5731. S2CID 236417850.
  5. ^ Milton Friedman (1987). "quantity theory of money", The New Palgrave: A Dictionary of Economics, v. 4, pp. 15–19.
  6. ^ "money supply Definition". Archived from the original on April 12, 2019. Retrieved July 20, 2008.

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