Money Supply — Smart Financial Analysis
Calculate M0/M1/M2/M3 aggregates and velocity of money. MV=PQ quantity theory.
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Money supply is the total amount of monetary assets in an economy. M1 includes currency, demand deposits, and checkable deposits—the most liquid money. The Fed uses open market operations (buying/selling Treasuries), the discount rate, reserve requirements (now 0%), and interest on reserves. Velocity (V) measures how often each dollar is spent per year.
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Why: Money supply is the total amount of monetary assets in an economy. M0 is physical currency; M1 adds demand deposits; M2 adds savings and small time deposits; M3 adds large depos...
How: Enter Currency M0 ($), Demand Deposits ($), Savings Deposits ($) to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
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📊 Money Supply Aggregates
📈 M2 Growth (US $T)
📊 Composition
📊 Velocity of Money
For educational purposes only — not financial advice. Consult a qualified advisor before making decisions.
💡 Money Facts
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Money supply measures the total monetary assets in an economy. M0 is physical currency; M1 adds demand deposits; M2 adds savings and near-money; M3 is broader. The quantity theory MV=PQ links money supply (M), velocity (V), price level (P), and output (Q). US M2 reached $20.9T in 2024. Velocity declined post-2008 to ~1.2.
Sources: Federal Reserve FRED, BLS, ECB Statistical, World Bank
Key Takeaways
- • M1 = currency + demand deposits; M2 = M1 + savings + time deposits + MMF
- • Velocity V = GDP / M2; US velocity fell from 2.2 to 1.2 post-2008
- • QE expanded Fed balance sheet by $5.6T during 2020-22
- • MV=PQ: money supply × velocity = price level × real output
Did You Know?
How Does Money Supply Work?
Aggregates Hierarchy
M0 < M1 < M2 < M3. Each level adds less liquid assets. M2 is the Fed's primary target for monetary policy.
Velocity of Money
V = GDP / M2. Higher velocity means each dollar circulates more often. Velocity declined as households and firms held more cash post-2008.
Fed Control Tools
Open market operations, discount rate, reserve requirements (now 0%), interest on reserves. QE directly expands the monetary base.
Expert Tips
Money Supply Aggregates
| Measure | Components |
|---|---|
| M0 | Currency in circulation |
| M1 | M0 + demand deposits + checkable |
| M2 | M1 + savings + time deposits + MMF |
| M3 | M2 + large time deposits + institutional MMF |
Frequently Asked Questions
What is money supply?
Money supply is the total amount of monetary assets in an economy. M0 is physical currency; M1 adds demand deposits; M2 adds savings and small time deposits; M3 adds large deposits and institutional funds. The Fed tracks M2 as its primary measure—US M2 was $20.9T in 2024.
What is the difference between M1 and M2?
M1 includes currency, demand deposits, and checkable deposits—the most liquid money. M2 adds savings accounts, small time deposits (CDs under $100k), and retail money market funds. M2 is broader and typically 4-5x larger than M1 in the US.
How does the Fed control money supply?
The Fed uses open market operations (buying/selling Treasuries), the discount rate, reserve requirements (now 0%), and interest on reserves. Quantitative easing expands the monetary base by purchasing assets. The Fed can also use forward guidance to influence expectations.
What is velocity of money?
Velocity (V) measures how often each dollar is spent per year. Formula: V = GDP / M2. US velocity fell from ~2.2 pre-2008 to ~1.2 by 2020. Lower velocity means more money is held rather than spent, reducing inflationary pressure.
How does quantitative easing affect money supply?
QE expands the Fed's balance sheet by purchasing bonds, injecting reserves into banks. The Fed added ~$5.6T during 2020-22 COVID response. This increases the monetary base; the impact on M2 depends on bank lending and velocity.
How does money supply relate to inflation?
The quantity theory (MV=PQ) suggests money supply growth can fuel inflation if velocity is stable. However, post-2008, massive money growth did not cause proportional inflation due to velocity decline. The relationship is complex and lags vary.
Key Statistics
Official Data Sources
⚠️ Disclaimer: This calculator is for educational purposes only. Actual money supply definitions vary by country. Not financial or policy advice.
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