The money supply is the total amount of money in circulation or in existence in a country. This can include cash, coins and balances held in checking and savings accounts. Money supply is analyzed by Economists and used by countries to develop important policies by controlling interest rates and the amount of money flowing into the economy. It is also a useful indicator of movements in the equity markets.
The following are definitions of the classifications of the various types of money. This provides a general guide and you should note that different countries may use different classifications.
M1: A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 includes the most liquid components of the money supply such as cash and assets that can quickly be converted to currency.
M2: A measure of the money supply that includes M1 as well as near money. This includes savings deposits, money market mutual funds and other time deposits. These are less liquid but can still be quickly converted into cash or checking deposits.
M3: This is the broadest measure of money supply which includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. M3 includes less liquid assets and emphasizes money as a store-of-value more so than a medium of exchange.
Contains information licensed under the Open Government Licence – Canada.