• The total money stock that circulates among the general public at a given period is called money supply.
• Money supply is a stock concept.
• The items of monetary aggregates which are bank liabilities can be categorized as follows:
  • Base money / High powered money / Reserve money supply
  • Narrow money supply
  • Broad money supply
• Broad money concept can be categorized again as:
  • M1= Narrow money supply
  • M2= Broad money supply
  • M2b= Consolidated broad money supply
  • M4 =Very broad money supply
• Base money can be analyzed in two ways:
  • Using Central Bank liabilities
  • Using Central Bank Assets
• Determinants of base money supply:
  • Net lending to the government by the Central Bank
  • Net foreign assets of the Central Bank
  • Other net assets of the Central Bank
  • Lending to commercial banks by the Central Bank
• Components of  high powered money:
  • Notes and coins in circulation
  • Deposits of commercial banks with the Central Bank
  • Deposits of government institutions with the Central Bank

Money Multiplier

• Money multiplier is the ratio between money supply and high powered money.
• Therefore multiplication of high powered money and money multiplier is the money supply.
• The relationship of money supply, high powered money, and money multiplier can be shown by the following equations.

• The preference of the people to keep money in the form of money at a given time can be defined as demand for money.
• Demand for money is based on the following three main factors.
  • Transaction motive
  • Precautionary motive
  • Speculative motive

Transaction Motive

• Since there is a gap between receiving income and spending the income by a person holding money balances for transactions is called demand for money on transaction motive.
• Demand for money on a transaction motive basically depends on the income level  of people.
• There is a positive relationship between the income level and demand for money on transaction motive.
• It can be shown by a function and a graph as below:

Precautionary Motive

• Holding money balances to spend in unexpected situations is known as demand for money on precautionary motive.
• Demand for money on precautionary motive also depends on the income level of people.
• There is a positive relationship between the income and the demand for money on precautionary motive.
• It can be shown by a function and a graph as below:

Speculative Motive

• Demand for money to earn profits in future from investments is called the demand for money on speculative motive.
• There is a negative (inverse) relationship between the demand for money on speculative motive and interest rates.
• It can be shown by a function and a graph as below:

• Anything that is generally accepted as a medium of exchange can be considered as money.

 Characteristics of Good money

• Acceptability
• Durability
• Uniformity
• Divisibility
• Portability
• Stability of value
• Discourages forgery

Currency

• Money which is legally accepted for transactions within the country is Currency.

Bank Money

• Current accounts with commercial banks are Bank money.

Modern Money

• Currencies and cheques are introduced as Modern money.

Near Money

• Assets that can be converted to a medium of exchange easily are Near money.

Money Substitutes 

• Money Substitutes act as a temporary medium of exchange but they do not comply with the function of money as a store of value.

Electronic Money

• Electronic money is a method of transaction through software storing the value of physical money electronically.

Functions of Money

• As a medium of exchange.
• As a store of value.
• As a unit of account.
• As a medium of deferred payment.

Internal value of Money 

• The Internal value of money is the quantity of goods and services that can be purchased by a unit of money of that country.
• The Internal value of money is determined on the domestic price level.

External value of Money 

• The External value of money is the quantity of goods and services that can be purchased by a one unit of money of that country from another country.
• The External value of money is determined on the exchange rate.

• Inflation brings about various economic effects.
• Decline in the real value of money has adverse effects on fixed income earners, depositors and creditors.
• Variable income earners and debtors are benefited by inflation.
• Real income can be calculated using the following formula:

• Economic cost of inflation is the decline in efficiency of economic activities.
• Monetary policies and monetary policy management can be used to control inflation.

• Inflation as the continuous increase of the general price level in the economy.
• Inflation can be analyzed using the following approaches:
  • Demands pull inflation
  • Costs push inflation
  • Structural inflation

Demand pull Inflation 

• Demand pull inflation occurs due to too much money chasing few goods.
• Financial expansion, Increase in government debts and increase in government expenditure cause increase in demand.
• Theory of demand inflation has two approaches called the quantity theory of money analysis and Keynesian analysis.

Costs push Inflation

• Cost push inflation occurs due to the increase of the prices of goods and services followed by the increase of cost of production with higher prices of inputs.

Structural Inflation 

• Structural inflation occurs due to rigidity, limitations and inelasticities in the economic structure.

• There are many indices available to measure the general price level in Sri Lanka.
• Among them, some are consumer price indices and some are prices used to measure total price level.
  • New Colombo consumers’ price index.
  • Wholesale price index.
  • Deflator Price index.

• General Price level is an index that reflects all the prices of goods and services.
• It is difficult to obtain a meaningful value on the general price level by simply adding the value of each good expressed in terms of rupees and cents.
• Therefore should obtain stated value of indices instead of value in rupees.
• Value of any variable that varies with time can be expressed through indices.
• Price indices are used to indicate the percentage changes of values of a time series compared to the base year.
• When the base year value is considered as 100 the amount of percentage changes of time series values for other years can be calculated.

Effective dose
Effective dose is used in considering the effect to biological things by various radiations.
Effective dose = Radiation dose x Q-Factor

Quality Factor (Q-Factor) is also called Relative Biological Effectiveness (RBE)
Equivalent dose, the SI unit of equivalent dose for human is the Sievert (Sv), older unit is rem, 1 Sv = 100 rem.