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And finance Allah Shmoop What is the money supply the

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money supply Well it's the supply of money Yeah Thank

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you everyone Good night All right We'll go to a

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bit more detail here first Let's define the money Part

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of the money supply will Money is the liquid financial

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stuff moving around the economy And it's also all those

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coins back Your couch Yeah it's liquid money And no

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we don't mean liquid like these things We mean liquid

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like these things Yeah Ching Well money is cash no

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bills and coins and easily liquid lee sellable financial instruments

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that can get turned into cash very easily So what's

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money again Well the seven bucks you have in your

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wallet it's the sixty eight cents in change in that

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couch cushion right there Yeah along with a gun And

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it's one hundred twelve dollars Forty five cents in your

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Bank of America checking account Yeah that's counted his money

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to its liquid You could just sign a piece paper

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put the numbers on it and turns into catch value

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due right away So that's what we called money is

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in money supply We add up the stuff and everyone's

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while in their one's couch cushions Everyone's banking accounts and

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plus a few other types of accounts that quickly get

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turned into cash like money market accounts at a brokerage

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stuff like that And you've got the money supply in

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the economy That's it Well there are a few different

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measures of the money supply M one m two an

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m three sounds like a list of promotional James Bond

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bosses But no they're different That's different him Their economic

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statistics put together by the Federal Reserve to track the

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size of the money supply helps them kind of think

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about what policies they want to implement We'll em One

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is the most narrow definition It only includes the amount

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of currency in circulation plus things that can get turned

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into currency almost instantly You know stuff like traveler's checks

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and the money and checking accounts Stuff like that Well

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em to then includes all the stuff in M one

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plus the money and things like savings accounts And while

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some money market accounts that kind of stuff then we

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have M three but includes all the above stuff plus

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some long term deposits like you commit to putting five

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grand and your savings account of Bank of America You

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can't withdraw it early or you pay a big penalty

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So that's kind of a long term deposit You get

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a little bit more interest in return for being ill

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liquid for six months So all those numbers those dollars

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are included an M three But well guess what It

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got expensive to track him three And now they're federal

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Cut the budget and Fed just doesn't track him three

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anymore Over time the Fed noticed that money supply measures

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really didn't relate a strongly to economic performance as they

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once did like thirty forty fifty years ago Well the

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process started in the eighties and by two thousand six

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the Fed decided that tracking M three as well you

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know more trouble than it was worth Well the feds

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still tracks and wanting him to though uses those stats

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less and less than it used to mean ing away

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back in the twentieth century for making policy decisions Yeah

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anyway in two thousand eighteen M one set at about

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three point seven trillion dollars an M to it about

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thirteen point nine trillion noticed How much bigger M too

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is an M one Okay so that's the money part

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of money supply But what about the supply concept here

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Well the basic concepts of economics are all about supply

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and demand Right But when we think of supplying the

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man we think of the supply and demand of a

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product There's only so much triple ripple chocolate peanut butter

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ice cream in the world that's supply or the supply

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of it Four hundred ninety two million pounds That's it

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Well there are many people who think it's the best

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flavor and want to eat it by the gallon That's

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demand Those air people are willing to pay four bucks

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a gallon for it or whatever cost not supply then

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meets the man How do you dio and you get

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a price But notice something about that price That price

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here Well it's given in money There's a second supply

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situation going on in any price The money supply You

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know how your great grand parents will say things like

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when I was your age and ice cream cone cost

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a quarter It's not that they used to eat little

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itty bitty tiny ice cream cones Things used to cost

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less at least in nominal terms like it took less

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cash to get stuff fewer pennies like back then Penny's

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actually matter And that didn't have anything to do with

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the supply or demand for ice cream It had to

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do with the supply of money For as long as

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most people can remember while things have been steadily getting

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more expensive right or at least more dollars to buy

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stuff that's inflation The value of a unit of money

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like the dollar has gone down because well there are

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more of them more units of money floating around making

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things more expensive more supply of money Things cost more

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in terms of the amount of dollars But we also

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earn Mohr you know in terms of the amount of

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dollars right Like a good wage a hundred years ago

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was like a dollar an hour maybe a dollar a

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day and today it's like a dollar a minute Go

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to see your dentist Been there done that Well that's

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why when you compare prices or wages with the past

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you have to use an inflation adjusted figure right You

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want to measure the buying power of a particular dollar

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otherwise things in the past always looked really cheap right

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Like we might talk about things in nineteen seventy two

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dollars Yes we're kind of anchoring the notion of the

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money supply itself Released how valued that money was alright

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Recap time Money supplies the amount of cash in an

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economy along with certain financial instruments and accounts that get

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turned into cash pretty easily The Fed measures money supply

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of U S dollars using m one m two They

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used to have a thing called them three but no

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BMWs driving that around now And the money supply comes

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into play in the way prices air set When buying

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something you have the supply and demand dynamics of the

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product you're looking to buy But you also have the

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amount of available money Yeah which goes into the price

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of things as well That's it Enjoy your fudge ripple

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there Well count coins

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