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The Money Supply Simplified

In: Business and Management

Submitted By PoolqPlyr
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Assignment 2.1

Group Project:
The Money Supply

By David Rathbun

Prof. Dr. David Bouvin

The analysis of the money supply is usually calculated by each individual countries central bank. These liquid assets include are considered the total number of monetary assets available for an economy at a specific time. This can be complicated but in analysis becomes quite simple. The United States uses M0 thru M3 and includes MB and MZM. Starting with M0 which is this is the most liquid assets easily spendable funds cash and coins outside of Federal Reserve Banks and the vaults of depository institutions. Countries differ on what is constitutes M1 and in fact the United Kingdom does not use M1 at all for their money supply. The United States calculates M1 as the total amount of cash/coins outside of the private banking system plus the amount of demand deposits, travelers checks and other check related deposits. Items not included in M1 are items such as savings accounts and stocks. These two financial transactions are considered part of M2 due the assets being less liquid. [1] Money supply M1 in the United States has increased to 2534.70 USD billion in May of 2013 from 2523.20 USD billion in April 2013.[2] M2 is calculated by adding up M1 and other less liquid funds such as most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificate of deposits under $100,000).[1] Money Supply M2 In the United States has increased to10552.60 USD billion in May 2013 from 10525.60 USD billion in April of 2013.[2] M3 is calculated including M2 and all large and long term deposits. Since 2006 the central bank of the United States no longer tracks M3. M3, however are now estimates produced by various British and European monetarists private industries. Currently the M3 money supply is contracting at a tremendous pace. The United States stock of money has fallen from $14.2 trillion to $13.9 trillion in three months to April amounting to an annual rate of 9.6pc contraction. MB is referred to as total currency or monetary base. This encompasses notes/coins in circulation also in bank vaults, and Federal Reserve Bank credit (reserves excess and required not physically present in banks). This is the base form which other forms of money are created and is traditionally the most liquid measure of the money supply. Central bank money is MB in the money supply statistics while the commercial bank money is considered M1 thru M3. MZM means money with zero maturity. This includes M1, savings deposits, and all money market funds. MZM has been a fairly accurate predictor of inflation. Excessive supply of money leads to reduction in value and causes inflation.[4] The outlook seems less than positive though 2015 with belief that the stimulus package of President Obama has not been effective enough.

[1] Wikipedia.org Paul M. Johnson. “Money Stock”, A Glossary of Political Economic Terms
[2] Tradingeconomics.com 2013 Trading Economics
[3] Shadowstats.com Aug. 3rd, 2008 Money Supply – Special Report
[4] Www.telegraph.co.uk Saturday June 22, 2013 Abrose Evans-Pritchard

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