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Economics

Study Notes

Definitions of the money supply

Level:
AS, A Level
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Here are the main measures of the money supply in the UK economy

Notes and coins:

  • Notes and coins in circulation outside the Bank of England
  • The Bank of England (BoE) makes sure it creates enough banknotes to meet the public’s demand for them

M0

  • Notes and coin plus central bank reserves

MZM

  • Notes and coin plus all sight deposits held by the non-bank private sector

M2

  • Notes and coin plus all retail deposits (including retail time deposits) held by the non-bank private sector

M4

  • Notes and coin, deposits, certificates of deposit, securities with a maturity of less than five years held by the non-bank private sector.

Narrow Money

The narrow money definition of the money supply is a measure of the value coins and notes in circulation and other money equivalents that are easily convertible into cash such as short term deposits in the banking system

Broad Money

Broad money is a measure of the total amount of money held by households and companies in the economy

Broad money is made up mainly of commercial bank deposits — which are essentially IOUs from commercial banks to households and companies — and currency — mostly IOUs from the central bank

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