Money supply refers to the total amount of monetary assets available in an economy at a point in time. In the United States, common aggregates include M0 (currency in circulation outside the central bank), M1 (M0 plus checkable deposits), and M2 (M1 plus savings deposits, small time deposits, and retail money-market funds). These aggregates differ in liquidity and scope, with M0 being the most liquid and M2 the broadest widely used gauge of money that can influence spending.
Policy makers, economists, and financial analysts monitor changes in money supply to gauge liquidity and the policy stance of the central bank. Central banks influence the money supply through tools such as open market operations, setting interest on reserves, reserve requirements, and the target for the policy rate. Broad growth in money supply can signal higher liquidity and potential inflationary pressure if accompanied by rising credit and demand, while slowing growth can indicate tighter financial conditions. Money-supply data are one input among many in macro analysis; they must be interpreted with other indicators such as inflation, employment, and credit conditions, because financial innovations and policy mechanics can affect aggregates differently over time.
For example, during 2020 the money-supply measures rose as central banks expanded liquidity, leading to higher M2 readings.
Monetary policy · Monetary base · M0 · M1 · M2 · Open market operations · Inflation