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You are here: Home / Finance / What is Money Supply? The Answer in Layman Terms.
What is Money Supply? The Answer in Layman Terms.

What is Money Supply? The Answer in Layman Terms.

May 20, 2020 By Cade Hildreth Leave a Comment

Money supply is the total amount of money circulating in the economy at a particular time, often measured on a country-by-country basis.

The reason that money supply is important is that it can drive inflation or deflation, affect the price of investments, influence exchange rates, and in some cases, impact economic and business cycles.

For this reason, money supply is tracked by the government or central bank of each country to keep track of a nation’s economic health and stability.

Types of Money Supply

While there’s lots of money floating out in the world, in reality, it can be separated into three simple categories.

The three types of money supply are known as M1, M2, and M3 money:

M1 Money

M1 money is active money. It includes all physical currency, including paper money and coinage, checking accounts, travelers’ checks, and similar accounts.

This is money that is immediately available to make purchases payments.

M2 Money

M2 money includes everything in M1, plus time-related deposits and non-institutional money market funds.

It is any money easily liquidated into cash.

M3 Money

M3 money is everything in M1 and M2, plus large deposits, institutional money market funds, significant liquid assets, and short-term repurchase agreements.

This is money that is less liquid than other components of the money supply.

The Fractional Reserve System

At a basic level, measurements of money supply exist to track the process of money creation.

Commercial (for-profit) banks play a major role in the process of money creation, in large part, because of the fractional reserve banking system used in the U.S. and worldwide.

Based on the fractional reserve system, when you put $100 in the bank, the bank is allowed to lend out $90 of it, keeping only $10 as mandated bank reserves. If the people/businesses who receive that $90 place it into a bank, then $81 can be lent out (90%). And so on. It is estimated that this system allows one dollar to be lent out up to 100 different times.

This means that a single dollar can multiply itself. Pretty fascinating, right? And, hopefully a little concerning too?

If you want to know financial speak, this is called the “multiplier effect.” It means money is created whenever a bank gives out a loan.

In short, the money supply needs to be tracked, because our financial systems allow it to multiply itself and shape-shift into new forms.

What questions do you have about the money supply? Ask them in the comments below and let’s discuss.

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“As an LGBTQ+ entrepreneur, real estate investor, former USA Rugby Player, and fitness fanatic, I’ll teach you what your parents and teachers should’ve taught you, but didn’t know themselves.” -Cade Hildreth

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Scroll … for an inside look…Hope you’re a Scroll … for an inside look…Hope you’re all living a life that is true to you 💛
I post these videos to help members of our communi I post these videos to help members of our community become financially free. 🏳️‍🌈🏳️‍⚧️🙏🏽I’m curious … growing up, did your family talk to you about money/investing? 🤔#lgbtqiaplus #nonbinary #financialfreedom #financialliteracy
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My recent podcast guest @Taryn.Durant is a LGBTQIA My recent podcast guest @Taryn.Durant is a LGBTQIA+ fitness coach, health professional, and entrepreneur. What's more, she has gone through an incredible fitness transformation of her own and now teaches other people how to do it too.If you haven’t already met all of your fitness and professional goals, then you’re definitely going to want to listen to this episode, because we go deep into...- how to construct a physique of your own imagination
- how to eat for muscle gain or fat loss
- how to make fitness inclusive for all bodies and genders
- how to handle anxiety
- what your mind tries to limit you and what to do about it
- and so much moreYou can listen on iTunes or Spotify at the "What You Should've Been Taught" podcast or you can follow this link:https://podcasts.apple.com/us/podcast/guest-taryn-durant-on-inclusive-fitness-mindset-and/id1523094339
Swipe until you read the quote, please … ➡️ Swipe until you read the quote, please … ➡️It’s funny because we’re taught that “different is wrong” but everything wonderful that has happened in my life is BECAUSE of being different.Remember…Extraordinary = extra (or beyond) ordinaryRemarkable = Worthy of remarkOutstanding = To stand outExceptional = To be the exceptionSo I say, let’s embrace different … celebrate it … and pursue it.Also, Happy Easter Weekend if you celebrate … and happy Spring if you don’t! 🐣☀️🌿#lgbtqiacommunity #lgbtqiaplus #lgbtqia #nonbinary #genderfluid
Happy #TDOV y’all! 🏳️‍🌈🏳️‍⚧️Today, on Transgender Day of Visibility (TDOV) I’m grateful for…Trans people
Nonbinary people
Gender expansive people
Gender nonconforming people
And, perhaps most importantly right now, our ALLIESWith all of the anti-LGBTQIA and anti-trans bills being proposed, I particularly appreciate the allies who are stepping up to do the work.Hope you’ve got a good one in your court, like Erin (my wife), featured here! 💗
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