Money Supply and its Determinants
Introduction The supply of money is a stock at a particular point of time, though it conveys the idea of a flow over time. The term ‘ the supply of money’ is synonymous with such terms as ‘ money stock’, ‘stock of money’, ‘money supply’ and ‘quantity of money’ . The supply of money at any moment is the total amount of money in the economy . There are three alternative views regarding the definition or measures of money supply. · The most common view is associated with the traditional and Keynesian thinking which stresses the medium of exchange function of money. Forms of MS M1 = C + DD (Demand Deposit) M2= M1 +TD (Time Deposit) M3= M2 + Liabilities of NBAFI Determinant of MS 1. High powered Money (H= C + R), (M = C + D) The H Theory of Money Supply’. However, it is more popularly called ‘Money-multiplier Theory of Money Supply’ because it explains the determination of money supply as a certain multiple of the high- powered money (M =m * H)