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Finance Dictionary and Glossary of Investment Terms
The entire quantity of a country's bills, coins, loans, credit, and other liquid instruments in the economy.
M1-A: Currency plus demand deposits.M1-B: M1-A plus other checkable deposits.M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.M3: M-2 plus large time deposits and term repos.L: M-3 plus other liquid assets.
The total supply of money in circulation in a given country's economy at a given time. There are several measures for the money supply, such as M1, M2, and M3. The money supply is considered an important instrument for controlling inflation by those economists who say that growth in money supply will only lead to inflation if money demand is stable. In order to control the money supply, regulators have to decide which particular measure of the money supply to target. The broader the targeted measure, the more difficult it will be to control that particular target. However, targeting an unsuitable narrow money supply measure may lead to a situation where the total money supply in the country is not adequately controlled.
The quantity of dollars, monitored and heavily influenced (if not controlled) by the Federal Reserve. There are three components of money supply: M1, the most basic measure, consists of currency, checking accounts, money market funds, NOW accounts and travelers checks. M1 is what the Fed watches most closely, and what it can most immediately influence by buying or selling Treasury securities. M2 is everything in M1 plus time deposits exceeding $100,000 and repurchase agreements. M3 is even broader, encompassing M2 as well as savings bonds, Treasury bills, commercial paper, Eurodollars and more.