Money Supply
Money is a collection of liquid assets that is generally accepted as a medium of exchange and for repayment of debt. In that role, it serves to economize on the use of scarce resources devoted to exchange, expands resources for production, facilitates trade, promotes specialization, and contributes to a society's welfare (Thornton, 2000). This theoretical definition serves two purposes: It encompasses new forms of money that may arise as a result of financial innovations related to technological change and institutional developments. It also distinguishes money from other assets by emphasizing its general acceptability as a medium of exchange. While all assets serve as a store of wealth, only a few are accepted as a means of payment for goods and services.
While this definition provides a clear picture of what money is, it does not specify exactly what assets should be included in its measurement. There are several liquid assets, such as coins, paper currency, checkable-type deposits, and traveler's checks, which clearly act as a medium of exchange and definitely belong in its measurement. However, several other assets may also serve as a medium of exchange but are not as liquid as currency and checkable-type deposits. For example, money market deposit accounts have check-writing features subject to certain restrictions, and savings accounts can be converted into a medium of exchange with a negligible cost.
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