How is the money supply defined?

The money supply is defined as the total amount of monetary assets available in an economy at a specific time. This includes not just physical currency, like coins and banknotes, but also various forms of deposits and other liquid assets that can be readily used for transactions. By focusing on all forms of money that can influence economic activity, such as demand deposits, savings accounts, and other near-money assets, this definition allows for a comprehensive understanding of how much money is circulating within the economy at any given moment.

Understanding the concept of the money supply is crucial as it plays a significant role in influencing economic variables like inflation, interest rates, and overall economic growth. Economists and policymakers monitor changes in the money supply to make informed decisions and implement effective monetary policy. This definition captures the essence of monitoring monetary conditions, which is essential for studying how money functions in an economy.