The Supply of Money

1. MONEY SUPPLY

2. Our Money Supply
• Money consist of coins, paper money,
demand (or checking) deposits, and
checklike deposits (commonly called NOW
– or negotiable order of withdrawal –
accounts) held by the nonbank public
– Coins and paper money together are
considered currency
– Six of every ten dollars in our money supply
are demand deposits and other checkable
deposits
• Virtually all the rest is currency
– Checks are not money but checking deposits
are
13-12Copyright ©2002 by The McGraw-Hill Companies, Inc. All rights reserved.

3. 13-13
Our Money Supply
Copyright ©2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Federal Reserve Statistical Release, April 5, 2001

4. 13-14
Our Money Supply: M1
Currency
+ Demand deposits
+ Other checkable deposits
+ Traveler’s checks
M1(traditionally our basic money supply)
Copyright ©2002 by The McGraw-Hill Companies, Inc. All rights reserved.

5. M1 = $1,368.4 (billions of dollars),
June 2005
The Federal Reserve uses
three definitions of the
money supply: M1, M2,
and M3.
M1 is equally split
between currency in
circulation and
checkable bank
deposits

6. 13-15
Our Money Supply: M2
Currency
+ Demand deposits
+ Other checkable deposits
+ Traveler’s checks
M1
+ Savings deposits
+ Small-denomination time deposits (less than $100,00)
+ Money market mutual funds held by individuals
M2
Copyright ©2002 by The McGraw-Hill Companies, Inc. All rights reserved.

7. M2 = $6,510.0 (billions of dollars),
June 2005
• The Federal Reserve uses
three definitions of the money
supply: M1, M2, and M3.
M2 has a much broader
definition: it includes M1,
plus a range of other
deposits and deposit-like
assets, making it about
three times as large.

8. 13-16
Our Money Supply: M1, M2, M3
Currency
+ Demand deposits
+ Other checkable deposits
+ Traveler’s checks
M1
+ Savings deposits
+ Small-denomination time deposits (less than $100,00)
+ Money market mutual funds held by individuals
M2
+ Large denomination time deposits (more than $100,00)
+ Money market mutual funds held by institutions
+ Other less liquid assets
M3

9. 13-17
Our Money Supply
M1, M2, and M3, January 2001
Copyright ©2002 by The McGraw-Hill Companies, Inc. All rights reserved.
M1=1,107 M2=5,111 M3=7,361
Currency in
circulation
539
Traveler's
checks
8
Demand
deposits
309
Other
checkable
deposits
251
Money market mutual funds
held by institutions
903
Other less
liquid assets
550
Large-denomination
time deposits
797
M2
5111
Saving
deposits
1970M1
1107
Money market
mutual funds
held by individuals
985 Small-denomination
time deposits
1049
Federal Reserve Bulletin

10. Our Growing Money Supply
13-18Copyright ©2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000
20
18
16
14
12
10
8
6
4
2
0
Ð2
Ð4
Annual Percentage Change in the Money Supply, M1, 1960-2000

11. Credit Cards
• Is the Credit Card in your wallet Money?
– It is accepted everywhere(Medium of exchange)
– You get a bill (Unit of Account)