How To Determine The Money Supply | The Science



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How to determine the money supply

Money supply - the totality of funds belonging to the state, legal entities and citizens involved in the maintenance of economic relations. This indicator provides a quantitative description of cash flow - the amount of money involved in the turnover for a certain period of time.

How to determine the money supply

Instruction how to define the money supply

Step 1:

To determine the money supply, consider the cash and non-cash, which exist in the form of entries in bank accounts. Non-cash funds, their number, consider the amendment on a particular kind of bank account, on which they lie. These accounts may have different interest rates, so make allowance for liquidity.

Step 2:

With this in mind, break the money supply into the following groups: - cash in circulation - money stored in the "on demand" bank accounts in which the account holder can demand the immediate issuance - money stored on term deposits, which can dispose of only under certain conditions, or after a certain period of time; - money held in foreign currency accounts.

Step 3:

For the analysis and definition of broad money, use the M0, M1, M2, M3 and M4, which are used in the Russian Federation. In this case, note that M0 is equal to the amount of cash in circulation. M1 = M0 + money stored on the "on demand" accounts.

Step 4:

Calculate aggregate M2. It is equal to M1 + money held in term deposits in banks, which may be included in the cash flow only under certain conditions.

Step 5:

The unit is calculated using the formula M3 M2 + bonds and certificates of state loans, commercial paper issued by a legal entities, deposits held in the specialized credit institutions.

Step 6:

Unit A4 = M3 + non-cash money, stored in the form of deposits in different credit institutions.

Step 7:

To determine the money supply in the financial statistics is sometimes used the concept of the monetary base. Also M0 aggregate it takes into account funds that commercial banks keep on correspondent accounts with the Russian Central Bank as a mandatory provision.