The money supply is a set of means of payment in the country's economy, including the volume of cash and non-cash money. The money supply characterizes the purchasing, payment and accumulation funds belonging to the citizens of the country, legal entities, as well as the state as a whole.
Instructions
Step 1
Use monetary aggregates to calculate the money supply. They are ranked according to the degree of liquidity decrease, i.e. the speed of converting into cash. In our country, four aggregates are used to determine the money supply.
Step 2
Unit М0 consists of cash in circulation (banknotes and coins), checks, as well as cash balances in the accounts and cash desks of enterprises. It should be noted that the largest share in the M0 unit is made up of banknotes. A check is a document that contains a requirement for the bank to pay money, which is a means of payment along with cash. The M0 unit serves the country's cash turnover and accounts for about one third of the money supply.
Step 3
In order to calculate the M1 aggregate, you need to know the value of M0, as well as the amount of funds on the settlement accounts of legal entities, funds of insurance companies, “On Demand” deposits of the population in commercial banks. This unit serves operations for the sale of GDP, accumulation and consumption, and the distribution of national income. Some economists believe that the money supply consists only of the M1 aggregate.
Step 4
However, in our country, when calculating the money supply, time deposits of the population in commercial banks and government short-term securities are taken into account, which together with the M1 aggregate make up the M2 monetary aggregate. Time deposits are clients' money placed with the bank for a certain period. You can get them after this period. In this connection, the liquidity of this unit is lower than M1.
Step 5
Unit M3 includes unit M2, as well as certificates of deposit and securities traded on the stock market. Of course, securities cannot be classified as full-fledged money, but at the same time they can be transformed into other types of money through the sale on the market.
