If you ask someone who hasn't taken a course in economics to define the money supply he or she is likely to say something like: "The money supply equals the total amount of paper currency and coins in circulation." Why does the Fed include more than just currency in M1, its narrow definition of the money supply?

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Business

Lola Heath

19 March, 22:00

If you ask someone who hasn't taken a course in economics to define the money supply he or she is likely to say something like: "The money supply equals the total amount of paper currency and coins in circulation." Why does the Fed include more than just currency in M1, its narrow definition of the money supply?

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Lewis Bryan · Answer 1

The definition given by the person is M0

M1 will also include other forms which are equivalent to cash or considered "near cash" as can be converted into currency in less than 90 days These are the most liquid assets a person or firm can get:

bank deposits traveler's checks and other checkable deposits. negotiable order of withdrawal (NOW)