Unit 1 · Level 1 · What money is
How much money exists?
Economists count money in layers. Start with cash, add everyday bank accounts, then savings accounts, and you get the broad measure called M2. Physical cash is only a small slice of that. The vast bulk of M2 is digital deposits that banks created by lending.
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What you get asked
What makes up most of the broad money supply (M2)?
Cash is roughly a tenth of the story; deposits are the rest. The money supply lives mostly on bank servers, not in wallets.
Build the money supply from narrowest to broadest.
Each layer is a bit less 'spendable right now' than the last. M2 captures money people can mobilise fairly quickly.
Most new money enters the economy through bank ___, not printing presses.
New loans mean new deposits. The printing press mostly just replaces worn-out notes.
The meme 'money printer go brrr' is misleading because…
Even in stimulus years, the main channel is credit and asset purchases flowing into deposits. Keyboards, not printing presses.
Why did the US money supply (M2) jump sharply in 2020?
Pandemic stimulus cheques, emergency lending, and massive bond-buying pushed US M2 up roughly 25% in a single year, a record. Keep that number in mind for the inflation unit. 🐜
The rest of this unit
Shells, paper, pixels: why money works at all, and who really creates it.