Money supply

Money supply is simply the amount of money available in the economy. There are several ways of measuring the various sorts of money, depending on how wide you make the definition.

In the UK, M0 - also called narrow money - includes only the most liquid types of money: cash, cash in bank tills, and deposits held at the Bank of England. M4 (M3 in the US) consists of cash, current-account deposits at banks and other financial institutions, and savings deposits.

Central banks keep a close eye on the money supply in the belief that it affects prices. If the amount of money in circulation rises, and the number of goods produced does not, then prices rise. This is called demand 'pull inflation', which in turn leads to commodity price rises that push other prices higher and creates 'push inflation'.

Article continues below

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Explore More

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.