• 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.