Money Supply

Definition

Money supply refers to all physical currency (coins and paper bills) circulating in an economy along with demand deposits held by individuals and businesses in commercial banks.

Related terms

M1: A narrow measure of the money supply that includes physical currency (coins and paper bills) and demand deposits.

M2: A broader measure of the money supply that includes M1 plus savings deposits, time deposits, and certain other liquid assets.

Fractional Reserve Banking: The banking system practice where banks keep only a fraction of their total deposits as reserves while lending out the rest.