Money Supply

Money supply refers to the total amount of money circulating within an economy at a given time. Economists break it into categories based on liquidity. The narrowest measure, called M0 or the monetary base, includes only physical currency like coins and notes. banks expand the money supply when they make loans, creating new deposits.

M1 builds on M0 by adding funds easily accessible for spending, such as checking account deposits. M2 goes further, including M1 plus savings accounts and other assets that can quickly be turned into cash, like short-term certificates of deposit. Other broader categories may be used, each capturing different types of financial assets depending on how easily they can be used as money. Understanding the money supply helps track economic health and central bank policy.