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Theory 4 - The supply of money - how much is there?

There are all sorts of assets that can be considered as money. Some are more liquid than others (see Theory 2 for more about liquidity) and all have different characteristics. Which should be counted in the money supply? The answer is probably all of them, but there are times when the movement of one may be more important than others.

There are two main different measures of the money supply. M0 includes just the most liquid forms of money, and is generally called a 'narrow measure' of money. M4, on the other hand, includes a variety of assets that are considered as money. M4 is therefore known as a 'broad measure' of the money supply. Collectively, M0 and M4 are known as the monetary aggregates. The exact contents of each is given below:

M0:

• notes and coins in circulation +
• Bank's balances at the Bank of England

M4:

• notes and coins (held by private sector) +
• private sector non-interest bearing £ sight deposits +
• private sector interest-bearing £ sight and time deposits +
• private sector holdings of £ certificates of deposit +
• private sector holdings of £ building society shares and deposits +
• building society holdings of bank deposits and bank certificates of deposit and notes and coins

For more detail on some of these terms (sight deposits, time deposits, certificates of deposit and so on), you may like to look at the glossary.

So, now we have looked at the characteristics of money, are credit and debit cards forms of money? When you have come to your conclusion, look at the answer below!