The Quantity of Money

The quantity of money, also called the money supply, is the total amount of money available in an economy.

In a modern economy like the U.S., money exists in different forms and can be accessed in various ways.

Economists rank these assets by their liquidity- how easily they can be used to buy goods and services.

Consider Tom. He can use cash to buy groceries or swipe a debit card that draws from his checking account.

Tom can use his bank’s mobile app to pay his electricity bill, which allows him to pay from his checking account.

He has been thinking about buying a car. When the time comes, he knows he can move money from his savings account into his checking account.

And if Tom faces a medical emergency, he knows he can access funds from his money market deposit account.

With so many different assets being used together, it becomes harder to draw a clear line around what should count as “money.”

It depends on which types of assets we include when defining the money supply.