The Demand for Money The demand for money is affected by several factors,
including the level of income, interest rates, and inflation as
well as uncertainty about the future. The way in which these
factors affect money demand is usually explained in terms of
the three motives for demanding money: the transactions, the
precautionary, and the speculative motives.
Supply of Money There are several definitions of the supply of money.
M1is the narrowest and most commonly used. It includes all
currency (notes and coins) in circulation, all checkable deposits
held at banks (bank money) and all traveler”s checks. A
somewhat broader measure of the supply of money is M2,
which includes all of M1 plus savings and time deposits held at
banks. An even broader measure of the money supply is M3,
which includes all of M2 plus large denomination, long-
termtime deposits – for example, certificates of deposit (CDs)
in amounts over $ 100,000.
