Money Supply and Balance Sheets

Money Supply  Money Supply = all the “money” in society, defined in several ways  M1 –coins, currency held by the public, –traveler's checks, –checking account balances –“cash” accounts (e.g., debit cards)  M2 (Common economic indicator used to forecast inflation) –M1 –Savings accounts –small short-term time deposits (CDs), –overnight “repos” at commercial banks –non-institutional money market accounts.  M3 –M2 –large time deposits –“repos” of maturity greater than one day at commercial banks –institutional money market accounts

Money Supply Source: St. Louis Fed

Balance Sheet Basics  Assets = are anything of value (deposits, houses, cars, the shirt on your back)  Liabilities = obligations to other parties (debts)  Net Worth = Assets — Liabilities  “Fractional reserve banking system” –Banks keep only fraction of their deposits: “reserves” –system in which banks hold reserves whose value is less than the sum of claims outstanding on those reserves –See pg 479: chart on reserves