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Karnataka Class 12 Commerce Economics Supply Of Money Complete Notes

Karnataka Class 12 Commerce Economics Supply Of Money Complete Notes

Karnataka Class 12 Commerce Economics Supply Of Money  : Karnatak University (Kannada: ಕರ್ನಾಟಕ ವಿಶ್ವವಿದ್ಯಾಲಯ) is a state university located in the city of Dharwad in the state of Karnataka in India. It was established in October 1949, and officially inaugurated in March 1950. The campus spans 750 acres (3 km²). D. C. Pavate was the first official vice-chancellor from 1954 to 1967. The rapid development of the institution is credited to him.

Karnataka Class 12 Commerce Economics Supply Of Money Complete Notes

Karnataka Class 12 Commerce Economics Supply Of Money  : We provide here Karnataka Class 12 Commerce Economics Supply Of Money  in PDF Format and here we gave direct download links for Karnataka Class 12 Commerce Economics Supply Of Money pdf format. Download Karnataka Class 12 Commerce Economics Supply Of Money  Complete Notes here and read well.

Karnataka Class 12 Commerce Economics Supply Of Money Complete Notes

Karnataka Class 12 Commerce Economics Supply Of Money : Is it a hard science used by bankers to make money? Like alchemists who conjure gold? Is it about politics and accounting? Though its ancient etymology defines it as “the science of wealth” its meaning has expanded over time, and it is now a social science of the factors influencing “well-being” as formally described by the Quality Assurance Agency For Higher Education.

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Karnataka Class 12 Commerce Economics Supply Of Money Complete Notes

Karnataka Class 12 Commerce Economics Supply Of Money Complete : The total supply of money in circulation in a given country’s economyat a given time. There are several measures for the money supply, such as M1, M2, and M3. The money supply is considered an important instrument for controlling inflation by those economists who say that growth in money supply will only lead to inflation if money demand is stable. In order to control the money supply, regulators have to decide which particular measure of the money supply to target. The broader the targeted measure, the more difficult it will be to control that particular target. However, targeting an unsuitable narrow money supply measure may lead to a situation where the total money supply in the country is not adequately controlled.

Use money supply in a sentence

“ The money supply was controlled by the federal reserve as they had the ability to print money at any time. ”

Definition: The total stock of money circulating in an economy is the money supply. The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets.

Description: Valuation and analysis of the money supply help the economist and policy makers to frame the policy or to alter the existing policy of increasing or reducing the supply of money. The valuation is important as it ultimately affects the business cycle and thereby affects the economy.

Periodically, every country’s central bank publishes the money supply data based on the monetary aggregates set by them. In India, the Reserve Bank of India follows M0, M1, M2, M3 and M4 monetary aggregates.

Karnataka Class 12 Commerce Economics Supply Of Money Complete Notes

Karnataka Class 12 Commerce Economics Supply Of Money Complete : Money supply is the entire stock of currency and other liquid instruments circulating in a country’s economy as of a particular time. Also referred to as money stock, money supply includes safe assets, such as cash, coins, and balances held in checking and savings accounts that businesses and individuals can use to make payments or hold as short-term investments.

(a) Meaning of Money Supply (D2010):

The supply of money means the total stock of money (paper notes, coins and demand deposits of bank) in circulation which is held by the public at any particular point of time.

Briefly money supply is the stock of money in circulation on a specific day. Thus two components of money supply are

(i) currency (Paper notes and coins)

(ii) Demand deposits of commercial banks.

Again it needs to be noted that (like difference between stock and supply of a commodity) total stock of money is different from total supply of money.

Supply of money is only that part of total stock of money which is held by the public at a particular point of time. In other words, money held by its users (and not producers) in spendable form at a point of time is termed as money supply.

The stock of money held by government and the banking system are not included because they are suppliers or producers of money and cash balances held by them are not in actual circulation. In short, money supply includes currency held by public and net demand deposits in banks.

Sources of Money Supply:

(i) Government (which Issues one-rupee notes and all other coins)

(ii) RBI (which issues paper currency)

(iii) commercial banks (which create credit on the basis of demand deposits).

(b) Alternative measures of Money Supply (money stock):

In India Reserve Bank of India uses four alternative measures of money supply called M1, M2, M3 and M4. Among these measures M1 is the most commonly used measure of money supply because its components are regarded most liquid assets. Each measure is briefly explained below.


(i) M1 = C + DD + OD. Here C denotes currency (paper notes and coins) held by public, DD stands for demand deposits in banks and OD stands for other deposits in RBI. Demand deposits are deposits which can be withdrawn at any time by the account holders. Current account deposits are included in demand deposits.

But savings account deposits are not included in DD because certain conditions are imposed on the amount of withdrawals and number of withdrawals. OD stands for other deposits with the RBI which includes demand deposits of public financial institutions, demand deposits of foreign central banks and international financial institutions like IMF, World Bank, etc.

(ii) M2 = M1 (detailed above) + saving deposits with Post Office Saving Banks

(ii) M3= M1 + Net Time-deposits of Banks

(iii) M4 = M3 + Total deposits with Post Office Saving Organisation (excluding NSC)

In fact, a great deal of debate is still going on as to what constitutes money supply. Savings deposits of post offices are not a part of money supply because they do not serve as medium of exchange due to lack of cheque facility. Similarly, fixed deposits in commercial banks are not counted as money. Therefore, M1 and M2 may be treated as measures of narrow money whereas M3 and M4 as measures of broad money.

In practice, M1 is widely used as measure of money supply which is also called aggregate monetary resources of the society. All the above four measures represent different degrees of liquidity, with M4 being the most liquid and M4 is being the least liquid. It may be noted that liquidity means ability to convert an asset into money quickly and without loss of value.

BREAKING DOWN ‘Money Supply’

Economists analyze the money supply and develop policies revolving around it through controlling interest rates and increasing or decreasing the amount of money flowing in the economy. Money supply data is collected, recorded and published periodically, typically by the country’s government or central bank. Public and private sector analysis is performed because of the money supply’s possible impacts on price level, inflation and the business cycle. In the United States, the Federal Reserve policy is the most important deciding factor in the money supply.

How Money Supply is Measured

The various types of money in the money supply are generally classified as Ms, such as M0, M1, M2 and M3, according to the type and size of the account in which the instrument is kept. Not all of the classifications are widely used, and each country may use different classifications. M0 and M1, for example, are also called narrow money and include coins and notes that are in circulation and other money equivalents that can be converted easily to cash. M2 includes M1 and, in addition, short-term time deposits in banks and certain money market funds. M3 includes M2 in addition to long-term deposits. However, it is no longer included in the reporting by the Federal Reserve. MZM, or money zero maturity, is a measure that includes financial assets with zero maturity and that are immediately redeemable at par. The Federal Reserve relies heavily on MZM data because its velocity is a proven indicator of inflation.

The Effect of Money Supply on the Economy

An increase in the supply of money typically lowers interest rates, which in turns generates more investment and puts more money in the hands of consumers, thereby stimulating spending. Businesses respond by ordering more raw materials and increasing production. The increased business activity raises the demand for labor. The opposite can occur if the money supply falls or when its growth rate decline.

Historically, the measure of money supply has shown that relationships exist between certain economic factors and inflation, which was used as a determinant of the future direction of price levels and inflation. However, since 2000, these relationships have become unstable, reducing their reliability as a guide for monetary policy. Although money supply measures are still widely used, they are no more important than the wide array of economic data that economists and the Federal Reserve collects and reviews.

Karnataka Class 12 Commerce Economics Supply Of Money Complete Notes

Karnataka Class 12 Commerce Economics Supply Of Money Complete : M1 is a metric for the money supply of a country and includes physical money — both paper and coin — as well as checking accounts, demand deposits and negotiable order of withdrawal (NOW) accounts. The most liquid portions of the money supply are measured by M1 because it contains currency and assets that can be converted to cash quickly. “Near money” and “near, near money,” which fall under M2 and M3, cannot be converted to currency as quickly.


Using M1 as the definition of a country’s money supply references money as a medium of exchange, with demand deposits and checking accounts the most commonly used exchange mediums following the development of debit cards and ATMs. Of all of the components of the money supply, M1 is defined the most narrowly. It doesn’t include financial assets like savings accounts. It is the money supply metric most frequently utilized by economists to reference how much money is in circulation in a country.

Money Supply and M1 in the United States

Up until March 2006, the Federal Reserve published reports on three money aggregates: M1, M2 and M3. Since 2006, the Fed no longer publishes M3 data. M1 covers types of money commonly used for payment, which includes the most basic payment form, currency, which is also referred to as M0. Because M1 is so narrowly defined, very few components are classified as M1. The broader classification, M2, includes savings account deposits and various time deposits such as money market account deposits.

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