money supply

money supply
= monetary stock
The quantity of money issued by a country's monetary authorities (usually the central bank). If the demand for money is stable, the widely accepted quantity theory of money implies that increases in the money supply will lead directly to an increase in the price level, i. e. to inflation. Since the 1970s most Western governments have attempted to reduce inflation by controlling the money supply. This raises two issues:
(i) how to measure the money supply;
(ii) how to control the money supply (see interest-rate policy). In the UK various measures of the money supply have been used, from the very narrow M0 to the very broad M5. They are usually defined as:
M0 — notes and coins in circulation plus the banks' till money and the banks' balances with the Bank of England;
M1 — notes and coins in circulation plus private-sector current accounts and deposit accounts that can be transferred by cheque;
M2 — notes and coins in circulation plus non-interest-bearing bank deposits plus building society deposits plus National Savings accounts;
M3 — M1 plus all other private-sector bank deposits plus certificates of deposit;
M3c — M3 plus foreign currency bank deposits;
M4 — M1 plus most private-sector bank deposits plus holdings of money-market instruments (e. g. Treasury bills);
M5 — M4 plus building society deposits. In some contexts the amount of money existing in an economy is called the monetary stock. To obtain the money supply the monetary stock has to be multiplied by the velocity of circulation

Big dictionary of business and management. 2014.

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