1. What is the Money Supply Formula?

The Money Supply (M) is the total amount of monetary assets available in an economy at a specific time. The basic formula sums currency in circulation and deposits in financial institutions.

2. How Does the Calculator Work?

The calculator uses the Money Supply formula:

Where:

• \( M \) — Money supply
• \( C \) — Currency in circulation (physical cash)
• \( D \) — Deposits in checking and savings accounts

Explanation: This represents the most liquid components of money supply (M1), which includes physical currency and demand deposits.

3. Importance of Money Supply Calculation

Details: Money supply is a key economic indicator that central banks monitor to implement monetary policy, control inflation, and stabilize the economy.

4. Using the Calculator

Tips: Enter currency in USD (physical cash) and deposits in USD (bank account balances). Both values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between M1, M2, and M3?
A: M1 includes currency and demand deposits. M2 adds savings accounts and small time deposits. M3 includes larger time deposits and institutional funds.

Q2: Who controls the money supply?
A: Central banks (like the Federal Reserve) influence money supply through monetary policy tools like open market operations and reserve requirements.

Q3: Why does money supply matter?
A: Changes in money supply affect inflation, interest rates, economic growth, and exchange rates.

Q4: How often is money supply measured?
A: In most countries, central banks publish money supply statistics weekly or monthly.

Q5: Does this include digital currencies?
A: Traditional measures only include government-issued currency and regulated deposits, though some central banks are considering how to incorporate cryptocurrencies.