What is meant by the money supply? The word itself means a certain amount at a certain time, even if the amount is unknown. Indeed, it may be useful measureof number was developed in accordance with the request.The Fed acted arbitrarily using the money, even to assist monetary policy decisions. Money is like cash in circulation and all deposits and savings banks. At one point, to set targets for monetary expansion. However, the majority ignored their wisdom, have found little correlation between them and their political objectives - to reduce inflation and unemployment.
Monetary Aggregates
The Fed has defined three monetary aggregates M1, M2 and M3. M1 narrow definition includes bank deposits and transactions in currency in circulation. M2 adds savings accounts, time deposits in banks and retailers, and maximize the money market funds. M3 adds time deposits, repurchase agreements, dollar, euro, institutional money market funds, including money insurance. In March 2006, the Federal Reserve stopped tracking M3, because it provides information about economic activities, functions that have not been included in M2.
Note that the definition of money supply the Fed, which only includes non-banking sector. This will give stocks, cash and deposits, directed the Fed, even if the partof the monetary base is not included in the monetary aggregates. This means that even if the bank increases the money supply. If you receive payments from the public as interest on loans, reducing the money supply. For information about the money insurance can be seen here.
Bank line of credit as cash equivalents
A major weakness of the definition is to ignore the Fed credit facility, which can be done at the discretion of the borrower. These companies often have large lines of credit with banks, which can be used in the short term. Just as consumers have a credit line on credit card bills and money insurance, which is very useful for purchases as demand deposit or money in your pocket. Improved cash credit line that is important in the end, the global demand increases.
If someone uses a credit card to purchase an automatic extension, the money supply. Sellers receive a new store, bringing the total deposits in the banking system - until the buyer pays the loan. The result is that consumers who pay their loans to pay off their credit cards rather than increasing the money supply on their own initiative, hundreds of billions of dollars. In fact, money is far greater and less calculated the definition of the Federal Reserve.
The quantity theory of money
Economists use the term to regular supply of money without it. An important example is the equation of variation of the quantity theory of money.
MV = PT
This is the money supply, M, and the velocity of money, V, the average price level, P, and the total number of transactions, T, again. This equation is just an identity, which means that it is true by definition. However, it is often used to "prove" that the average price increase on the amount of money. Sun says nothing about the causal relationship. All I know is the product of MV, as equivalent to national income, PT, which in turn can be measured. The amount of money, M, is still undefined and unknown.
