Meaning:

The supply of money, often referred to as the money supply, includes all forms of money in an economy that are readily available for spending. It includes both physical currency and various types of deposits held by individuals, businesses, and institutions within the banking system. The money supply is a key concept in monetary economics and plays a vital role in influencing economic activity and the behavior of interest rates.

Supply of money refers to aggregate stock of money that is currency, notes and coins held by the people in the country at a particular point of time. Monetary authority of an economy undertakes the task of issuing currency notes and coins. In India RBI and government of India together forms the monetary authority. The total amount of money in circulation is called supply of money. Since April 1977 RBI has adapted four concepts of money supply that is M1 M2 M3 and M4.

• M1- it includes currency with public demand deposits and other deposits with RBI. it is termed as narrow money it is measured as follows

M1 = C + DD + OD

Where C represents currency with public, DD represent demand deposit with commercial bank, OD represents other deposit with RBI.

• M2- it includes all the components of M1 and saving deposit with post office. It is measured as follows M2 = M1 + POSBD were POSBD represent post office saving deposits.
• M3- it includes all the components of M1 along with the time deposit of all banks it is broad money concept. It is measured as follows M3 = M1 + TD where TD represent time deposits with all banks.
• M4- it includes all the components of M3 and total deposit with post office saving deposit, it is measured as follows M4= M3 + TOPD  Where TOPD represent total post office deposits.

Central banks and monetary authorities often monitor and regulate the money supply to achieve various macroeconomic objectives, such as price stability, economic growth, and full employment. They use monetary policy tools, such as open market operations, reserve requirements, and discount rates, to influence the growth rate of the money supply and control inflationary pressures in the economy. Additionally, changes in the money supply can impact interest rates, exchange rates, and overall economic activity, making it a critical variable in understanding and analyzing macroeconomic dynamics.

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