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Describe how the money supply is measured in the United States and how banks, the public,...

Describe how the money supply is measured in the United States and how banks, the public, and the Federal Reserve can influence it.

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Answer #1

There are two measurement parameter for money supply in United States.

1. M1: It includes currency in circulation, checking deposits and travellers check.

2. M2: It is an addition of M1 and savings, time deposits and money market mutual funds.


The Fed is the financial supply controller in the economy. It has direct powers and instruments to control the supply of money. Through adjusting their interest rates on loans and their interest rates on deposits, banks will control the cash supply. The public can influence the money supply through determining and changing your demand for money, including money demand for transactions, money demand for speculation and money cautionary demand.

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