what do you mean by Money Supply?

Question

how it dampens the inflation rate?
additional question:
what is lending rates and borrowing rate?

Answer 1

There are two sides to this question, what is money supply and what is money demand.

The supply of money can have various meanings. It can simply mean all currency and bank reserves and all checkable deposits. That is the smallest measure of the money supply. It is useable money available in the economy.

A slightly higher order of money supply includes all of the above, but also near money, such as money in a savings account.

Finally, there is also a definition of money that includes things such as CD's which could be converted to money at a penalty, but are not easily spent immediately.

The flip side is how much money is demanded for daily use by businesses and consumers from banks.

Increasing the supply of money increases inflation, in the absence of growth, on a one for one basis.

Lending rates are the rates at which lenders offer money to borrowers. The borrowing rate and the lending rate have to be the same, otherwise no one could loan anyone money.

Answer 2

The money supply is the amount of money circulating in the economy. It is controlled by the Federal Reserve Bank and is used to adjust the economy to prevent inflation or recession. The Fed increases the money supply to stimulate the economy and reduces the money supply to dampen it. If it appears that the inflation rate is increasing too fast, the Fed may increase interest rates to make it harder to borrow money and put a damper on the economy. If the economy is tending toward a recession, the Fed reduces the interest rate to stimulate borrowing which increases business activity such as construction and capital investment.

The Fed also controls the money supply by buying and selling government securities. To inject money into the system, the Fed buys up government bonds. To buy the bonds it has to offer a higher price than exists in the bond market. Sellers of the bonds then have more money to spend. Alternatively, the Fed can offer bonds for sale at a favorable price, i.e. a higher interest rate that is available in the bond market, and bond buyers will invest their money in the bonds. That reduces the money supply available in the economy.

Answer 3

Isn't Money supply the same as Water supply and gas supply ?

Answer 4

U can refer to
http://findanswernow.blogspot.com/2007/10/money-supply.html