The U.S. money supply is all the physical cash in circulation throughout the nation, as well as the money held in checking accounts and savings accounts. It does not include other forms of wealth, such as long-term investments, home equity, or physical assets that must be sold to convert to cash. It also does not include various forms of credit, such as loans, mortgages, and credit cards.
Measurement of the Money Supply
The Federal Reserve measures the U.S. money supply in three different ways: monetary base, M1, and M2.
- Monetary base is the sum of currency in circulation and reserve balances (i.e., deposits held by banks and other depository institutions in their accounts at the Federal Reserve).
- M1 is the sum of currency held by the public (i.e., currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions); traveler’s checks