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Money Supply

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In macroeconomics, the money supply is the amount of money in use in an economy. There are multiple measures of the money supply, depending upon how money is defined. Some common measures of the money supply in the US are called M0, M1, M2, and M3. For example, M0, the narrowest definition of the US money supply, is the sum of all notes and coins in circulation. The money supply is important because of its direct relationship to inflation. Since the control of inflation is a typical objective of monetary policy, influencing the size of the money supply is an important central bank policy lever. The Federal Reserve influences the US money supply through the open market operations of the Federal Open Market Committee (FOMC) in New York.



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