Money

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Money is a medium of exchange and transaction in any economy, consisting mostly of cash and its equivalents, either in circulation or storage. Money markets serve the short-term credit market while the overall money supply is an indicator of longer-term inflation pressures in an economy.

Money has traditonally been viewed as a combination of unit of account, store of value and medium of exchange, althought the first two are today considered non-essential properties, especially since inflation erodes money's value over time.[1]

Easy as 123

The U.S. Federal Reserve regularly measures the money supply by two different metrics: M1 and M2.[2] The first consists of currency, travelers checks, demand deposits and other checking accounts, while the second consists of these elements plus savings and money-market deposits, short-term CDs and retail momey-market mutual funds. In the year to September 2008, seasonally-adjusted M1 increased 6.4% to $1.45 trillion while seasonally-adjusted M2 rose by 6.2% to $7.7 trillion.

A third measure of the money supply, M3, is considered the broadest measure of how much money in an economy. It consists of all categories of money defined as M2 plus time deposits and repurchase (repo) agreements of over $100,000, balances in institutional-investor money market mutual funds and some Eurodollar balances.[3]

References

  1. Money. About.com.
  2. Money Stock Measures. Federal Reserve.
  3. M3. ADVFN.com.