Money supply

The money supply of a country is the total value of all the money that exists in the economy. The money supply consists of cash holdings and deposits by commercial banks.

When people borrows money from the bank these money will usually come back as deposits in the bank. The money that is borrowed is used to pay someone else this someone else will probably put them on the bank. The money supply controls the price level in the society.

An increase in the money supply leads to an increase in the price level if all other factors are held constant. If there is a money supply of $ 100 in the economy one product to buy in the economy, then this will be sold at $ 100. If there is a money supply of $ 200 and one product to buy, this will probably be sold at $ 200.