Money Supply
How much
money is there in the USA? Before we can answer that question, we need to
redefine a couple of concepts:
A
demand
deposit is an amount that is on deposit in a checking account. It is
called a demand deposit because it can be claimed
immediately—on demand—by presenting a properly made-out check, withdrawing cash
from an automated teller machine, or by transferring money between accounts.
A time deposit
is
an amount that is on deposit in an interest-bearing savings account. Savings
institutions generally permit immediate withdrawal of money from savings
accounts. However, they can require written notice prior to withdrawal.
Time
deposits are not immediately available to their owners, but they can be
converted to cash easily. For this reason, they are called near-monies.
Money Supply is the total
amount of money that exists in the economy of a country at a particular time.
The
Mi
supply
of money consists only of currency and demand deposits. By law, currency
must be accepted as payment for products and resources. Checks are accepted as
payment because they are convenient, convertible to cash, and generally safe.
The supply of
money consists of Mi (currency and demand deposits) plus certain
specific securities and small-denomination time deposits. Another common
definition of money — M3 — consists
of Mi and M2 plus large time deposits of $100,000 or more. The
definitions of money that include the M2 and M3 supplies are
based on the assumption that time deposits are easily converted to cash for
spending.
So, there
are at least three measures of the supply of money. (Actually, there are other
measures as well, which may be broader or narrower than Mi, M2, and M3.) So the
answer to our original question is that the amount of money in the United
States depends very much on how we measure it.
II. Study the text and be ready to comment on
it
PERSONAL
FINANCE: Employees may receive the money they have earned as weekly wages in cash (if
they are blue-collars), or as monthly salary in a current
account (if they are professionals). In the latter case, the current
account (U.S. checking account) is where
they pay in their earnings and from where
they withdraw money to pay their everyday bills. Holders can
withdraw their money with no restrictions, but they receive little interest. The bank
sends them a bank statement telling them how much money is in
their account. They can also give an instruction to the bank to pay fixed sums
of money to certain people at stated times by a standing
order. People can also withdraw from their current account more money
than they actually have in it. It means that they overdraw their account.
Generally, people avoid having an overdraft because in
the end they will pay a lot of interest to the bank.
People may
also save up money. They open a savings
account where they deposit any extra money that they have and only take it
out when they intend to spend it on something special. When they invest money
in a deposit account (U.S. time
account), the customers receive a high rate of interest but withdrawals
require prior notice. If they want to buy their own house, which is a big
investment, they may take a bank loan for which
they must leave a pledge. If the bank
grants them this loan, they have a mortgage.
When you
purchase in a shop, you may pay in cash or by credit
card. In some shops it is possible not to pay outright, but on credit. If you buy in bulk you may be
offered a discount. With such goods as cars,
refrigerators or furniture, you may pay the full amount or you may pay in
installments.
PUBLIC FINANCE: People, the
disadvantaged ones in particular, may receive some money from the government as
well, as a form of social security. For
instance, the government pays out pensions, unemployment benefits,
disability allowances, child allowance, and grants and scholarships
to
help students pay for studying.
In order to be able to
redistribute some money, the government has to form the budget first and
cover its expenses according to its fiscal policy. The
government levies the money it needs from citizens
through various taxes. Income tax is the tax
collected on individuals' wages and salaries. Inheritance
tax is levied on what people inherit from others asa legacy.
