Legal Definitions - money supply

Money Supply

Money supply refers to the total quantity of currency and other liquid assets available within a country's economy at a specific point in time. It encompasses not only physical cash but also funds held in various types of bank accounts that can be readily accessed and used for transactions.

• Example 1: Central Bank Policy

  When a nation's central bank, like the Federal Reserve in the United States, observes that the money supply is expanding too rapidly, it might consider raising interest rates. The goal is to make borrowing more expensive, which can slow down spending and prevent inflation caused by too much money chasing too few goods. This illustrates how the total amount of money circulating influences major economic policy decisions.

• Example 2: Impact of Digital Payments

  Consider a country where mobile payment apps and digital bank transfers have become the primary method for daily transactions, significantly reducing the use of physical cash. In this scenario, a large portion of the country's money supply would exist as digital balances in bank accounts rather than banknotes and coins. This demonstrates that the money supply includes both physical currency and the digital funds held in financial institutions.

• Example 3: Government Economic Stimulus

  During an economic downturn, a government might implement a stimulus package that includes direct payments to citizens or increased spending on infrastructure projects. This injection of funds directly increases the overall money supply in the economy, aiming to boost consumer spending and investment. This example shows how government actions can directly alter the total amount of money available for economic activity.