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A decrease in the money supply creates an excess- demand for money that is eliminated by falling prices.
What is Money supply?
The total amount of money in circulation at a given time is the money supply in an economy. Cash and its substitutes, such as coins, bills, and bank deposits, are examples of this. It is an important idea that has a big impact on a nation's finances and economy.
Measurements of Money supply
1.The M1 money supply, sometimes known as "narrow money," consists of M0 and other extremely liquid bank deposits.
2.M1 plus marketable securities and less liquid deposits make up the M2 money supply, which is arguably the most widely used indicator.
3.M3 money supply, also referred to as "wide money," is made up of money market funds such as mutual funds, repurchase agreements, commercial papers, and other similar instruments.
4.M3 and all other least liquid assets, which are typically held outside of commercial banks, make up the M4 money supply.
To know more about Money supply refer to-
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