Features of Money Supply

What are Money Supply Features-Frequently Asked Questions-Features of Money Supply

The country’s Central Bank keeps track of how much money is in circulation at any given time. A country’s monetary policy can affect things like the prices of assets, inflation, exchange rates, and government programs. Check out these features of money supply to broaden your horizons.

The “money supply” is the total amount of cash and bank savings that are in use at any given time. Along with the amount of currency in circulation and the value of demand deposits, the amount of currency in circulation and the value of demand deposits are the usual ways to measure money.

Features of Money Supply

The only thing that makes up an economy’s money supply is how much cash people and businesses have. The “public” is the economic sector of the country, which includes both private customers and businesses. Since the amount of cash held by these institutions does not truly reflect the total amount of money in circulation, the banking system and government of a country are not thought to be involved in making new money for that country. Check out these features of money supply to broaden your knowledge. Read widely about control of money supply subject to get a fuller view.

Reserve Ratio

The reserve requirement ratio tells how much cash banks and other financial institutions must always have on hand. Lowering the required reserves by the Federal Reserve gives banks more money to lend to customers and reduces their on-hand reserves. As a direct effect of this change, the line that shows the money supply will move to the right. When the Federal Reserve maintains a high reserve requirement, banks must allocate more money to reserves, hindering their ability to lend. Banks keep more money in backup because regulations mandate it. So, the curve that shows the amount of money in circulation moves to the left.

Rate of Discount

When banks take money from the Federal Reserve, they have to pay the discount rate as interest. When the Federal Reserve raises the discount rate, it also raises how much banks have to pay to borrow money from it. After that, the amount of money goes down, so the curve that shows it moves to the left. But when the Federal Reserve cuts the discount rate, it makes it much cheaper for banks to borrow money from the Federal Reserve. Because of this, the total amount of money in circulation goes up, and the line that shows its growth moves to the right.


It is hard to make fake money. It is important for the people to believe that fake money won’t make out of real money. If we didn’t have access to reliable markets, our money would lose value and businesses wouldn’t take it as payment. This is good features of money supply.

Open Market Trading

By taking part in open market activities, the Federal Reserve buys and sells securities. When the Federal Reserve buys stocks on the market, the money supply goes up. Because of this, the money supply curve moves to the right. The supply curve moves to the left because the Federal Reserve sells assets on the market. This means that less money is moving around in the economy.

Low Availability

For money to keep its value, there needs to be a fixed amount of it. Using cattle as money would devalue them due to increased production by farmers trying to meet the demand shortfall. The Federal Reserve tries to keep the amount of money, especially twenty-dollar bills, at a low level. This helps keep the buying power of money over time.


Even though it’s clear that horses have value, some people won’t accept them as money. On the other hand, most places will take twenty dollar bills. The government of the United States protects your ability to use dollars for banking transactions.


Any way to do business must be able to stand the test of time. Bananas lose worth when they go bad, just like many other things that go bad. This makes them less desirable to buy. Metal coins and paper notes were used as money even in the oldest societies because they could last for a long time.Even though cows are hardy animals, their value can drop a lot if they get sick or die on a long trip to the market. You can easily get a new $20 bill if you have one that is torn or broken. Even better, the long trip the bill must take to get to its final market won’t make it less real or less valuable.


Due to their different sizes and prices, cows are not seen as a very common form of cash. A twenty-dollar bill is the same size, has the same face value, and looks the same.

Currency Exchange Rate

In a monetary system, the “Monetary Standard” is the name for the type of money that is used most often. Most of the time, people talk about a country’s money system by talking about its national currency. So, the term “monetary standard” is often linked to the idea of a single currency. In a monetary system, fiat currency encompasses all forms of paper and credit convertible into fiat currency. The standard unit of money in a bimetallic system is both gold and silver. In a gold standard system, on the other hand, the standard unit of money is only gold.


It is important for people to be able to send money to each other. Large rocks and huge gold bars are two examples of obstacles that would be hard to get around.It’s hard to get the cattle to the market, but it’s easy and convenient to carry money.


For money to keep its value, there needs to be a fixed amount of it. Even though pebbles meet some of the other requirements for cash, they are too easy to get to use as money. When there is a lot of money floating around, costs and inflation both go up. Most of the time, states deal with a lack of money by putting limits on how much money can make.


For money units to be useful, they need to be easy to divide. A currency that is easy to divide makes it easier to make deals of any size.A twenty-dollar bill can break up into smaller bills of the same value, like ten and five dollar bills, or four bills worth one dollar and four quarters each. On the other hand, a cow is not easy to split up.

Reserves Needed

Banks typically express the portion of savings unusable for loans as a decimal, such as 20%. The word “required reserves” refers to the amount of deposits that a bank is required by banking rules to set aside and not use for anything else.


Why does the Quantity of Money Grow?

When interest rates are low, people are more likely to keep cash on hand. On the other hand, people are less likely to keep cash on hand when interest rates are high. Currency’s supply and demand can also bring into balance by raising or lowering the price. Prices go up because people spend their real money quickly, which happens when they have more fictional currency than they need.

How do we Regulate the Money Supply?

Open market operations, or OMO for short, are a way for central banks to change the amount of money in circulation by buying and selling government assets. In order to increase the amount of money in the economy as a whole, central banks often buy government assets from private banks and other financial institutions on the secondary market.

Who Creates most of the Currency in Circulation?

India makes most of its new money through bank accounts and the printing of money. The Reserve Bank of India (RBI) is the government organization in charge of managing India’s money supply and making new money. The money that the Central Bank makes and gives out is called “base money.”


But the quantity of money is a completely different idea. It is a financial term that most people understand to mean the total amount of fiat cash and demand deposits in a country’s banks. In other words, it is the total amount of money that people in a country have. In this guide, we’ve explained features of money supply. I hope that provided you with some useful knowledge.

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