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.

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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.