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Money Supply

Trading Term

The total amount of currency and liquid investments within an economy. It generally includes bank accounts, paper currency and liquid money market assets. Central banks expand the money supply to stimulate the economy and reduce the money supply to prevent the economy from overheating through their reserve requirements, interest rate setting, bond transactions and other measures.. Monetarists believe that the amount of money is circulation has an effect on the general level of prices within an economy. The phenomenon of rising prices is known as inflation, while falling prices is referred to as deflation.

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