Money Supply

MONEY : By standard definition are all those printed currencies in circulation and deposit which can easily be converted in cash.

The money supply (money Stock) is the total value of the money whether it is in cash or all liquid assets in circulation at a particular point in time of measure. The money supply is mostly handled and measure an economist in central banks to maintain the stability of the flow of money in the economy, all financial participant in the economy must keep on update with money supply report because this will have an impact on pricing and interest rate in the economy.

there are different ways of measuring the money we have in the economy, we must understand the different classification of the money in terms of their liquid state whether it is cash, coin or deposit in the banks.

So, Economist and policymaker generally classified the money into Mo, M1, M2 and M3.

M0= Is the most narrow form of the money supply which implies to the cash(coin) in hands which are in circulation. in more simple terms money(cash) which are printed by the central bank.

M1= This money supple includes M0 plus the checkable deposit which are liquid in nature but not in circulation. M1 is the most basic money supply refers to the all-cash in hand or wallets which can be directly used for the transaction

M2= Now M2 includes M1 plus all other liquid assets that can easily be converted into Cash or M1 like your saving account in the banks and money market accounts. they are known as bit less liquid but it can easily be converted into cash.

M3= For more border classification we have M3, which includes M2 plus long term larger deposit, and all other assets which are fairly liquid in nature but less liquid than M2.

Note: Central bank like Federal reserve banks stop reporting on M3 in recent past. Different countries and central banks define their own classification of money supply relevant to their own economy, some countries even have till M4 like India and eurozone normally use M1, M2 and M3.