money supply refers to the total amount of money that is in circulation
In the United States, the money supply refers to the total amount of money that is in circulation. This consists of the balances in bank accounts and cash. Money supply is also referred to as the group of safe assets that businesses and households can use in holding short term investments and making payments (Paul, 2019). An example is the dollar currency and balances that are held in both savings and checking accounts, which are included as well as measures of money supply.
The U.S. government measures the money supply using three different ways, which are monetary base, M1, and M2. Monetary base refers to the total currency that is in reserve balances and in circulation. M1 is the amount of currency that is held by the public, meaning that it is outside the vaults of depository institutions, Federal Reserve Banks, and in the U.S treasury; transaction deposits at depository institutions; and traveler’s checks of non-bank issuers. As of November 2019, M1 was $3.964 trillion (Clark et al., 2020). Out of this, currency was $1.705 trillion, and the rest were deposits. In the case of M2, it includes money market funds, money market accounts, time deposits that are below $100,000, and M1 with savings accounts. M2 does not include Keogh retirement accounts or IRA (Clark et al., 2020). As of November 2019, M2 was $15.327 trillion. Of this amount, time deposits were $591 billion, money markets were holding $1.003 trillion, and the savings accounts was holding $9.769 trillion (Clark et al., 2020). The balance was M1.