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And finance Allah Shmoop What is the money supply the

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

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

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

of the money supply will Money is the liquid financial

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

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

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

like these things Yeah Ching Well money is cash no

bills and coins and easily liquid lee sellable financial instruments

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

money again Well the seven bucks you have in your

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

couch cushion right there Yeah along with a gun And

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

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

to its liquid You could just sign a piece paper

put the numbers on it and turns into catch value

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

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

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

plus a few other types of accounts that quickly get

turned into cash like money market accounts at a brokerage

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

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

measures of the money supply M one m two an

m three sounds like a list of promotional James Bond

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

statistics put together by the Federal Reserve to track the

size of the money supply helps them kind of think

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

is the most narrow definition It only includes the amount

of currency in circulation plus things that can get turned

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

and the money and checking accounts Stuff like that Well

em to then includes all the stuff in M one

plus the money and things like savings accounts And while

some money market accounts that kind of stuff then we

have M three but includes all the above stuff plus

some long term deposits like you commit to putting five

grand and your savings account of Bank of America You

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

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

a little bit more interest in return for being ill

liquid for six months So all those numbers those dollars

are included an M three But well guess what It

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

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

anymore Over time the Fed noticed that money supply measures

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

once did like thirty forty fifty years ago Well the

process started in the eighties and by two thousand six

the Fed decided that tracking M three as well you

know more trouble than it was worth Well the feds

still tracks and wanting him to though uses those stats

less and less than it used to mean ing away

back in the twentieth century for making policy decisions Yeah

anyway in two thousand eighteen M one set at about

three point seven trillion dollars an M to it about

thirteen point nine trillion noticed How much bigger M too

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

of money supply But what about the supply concept here

Well the basic concepts of economics are all about supply

and demand Right But when we think of supplying the

man we think of the supply and demand of a

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

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

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

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

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

demand Those air people are willing to pay four bucks

a gallon for it or whatever cost not supply then

meets the man How do you dio and you get

a price But notice something about that price That price

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

situation going on in any price The money supply You

know how your great grand parents will say things like

when I was your age and ice cream cone cost

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

itty bitty tiny ice cream cones Things used to cost

less at least in nominal terms like it took less

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

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

the supply or demand for ice cream It had to

do with the supply of money For as long as

most people can remember while things have been steadily getting

more expensive right or at least more dollars to buy

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

like the dollar has gone down because well there are

more of them more units of money floating around making

things more expensive more supply of money Things cost more

in terms of the amount of dollars But we also

earn Mohr you know in terms of the amount of

dollars right Like a good wage a hundred years ago

was like a dollar an hour maybe a dollar a

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

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

why when you compare prices or wages with the past

you have to use an inflation adjusted figure right You

want to measure the buying power of a particular dollar

otherwise things in the past always looked really cheap right

Like we might talk about things in nineteen seventy two

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

money supply itself Released how valued that money was alright

Recap time Money supplies the amount of cash in an

economy along with certain financial instruments and accounts that get

turned into cash pretty easily The Fed measures money supply

of U S dollars using m one m two They

used to have a thing called them three but no

BMWs driving that around now And the money supply comes

into play in the way prices air set When buying

something you have the supply and demand dynamics of the

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

amount of available money Yeah which goes into the price

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

there Well count coins