money supply
The total amount of money in circulation in an economy, measured in categories from M0 (physical currency) to M2 (currency plus bank deposits).
Example
“When the Federal Reserve expanded the money supply through quantitative easing, it risked fueling inflation.”
Memory Tip
MONEY SUPPLY = all the money in the economy. Fed controls it to fight inflation or stimulate growth.
Why It Matters
Understanding money supply helps you grasp why inflation happens and how central banks influence interest rates and loan availability. When money supply grows too quickly, your savings may lose purchasing power, affecting how much your money can buy in the future.
Common Misconception
Many people think money supply only refers to physical bills and coins in their wallets, but it actually includes most of the money in bank accounts and savings accounts. The majority of money supply exists only as digital entries in financial systems, not as tangible cash.
In Practice
If a central bank increases money supply from 2 trillion dollars to 2.5 trillion dollars during economic weakness, banks have more funds to lend, making mortgages and car loans cheaper. However, if this happens too quickly, prices for goods and services may rise by 5 percent or more, meaning your paycheck buys less than before.
Etymology
MONEY (currency and deposits) SUPPLY (total amount available). The total SUPPLY of MONEY in the economy.
Common Misspellings
Learn economics & finance from top universities
Related Terms
More in economics
Other economics terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.