University Abdelhamid Ibn Badis Mostaganem

Faculty of economics commerce and management sciences

1 LMD Academic year: 2022/2023

Lesson 06 – THE SUPPLY OF MONEY (2 nd

version)

Learning objectives:

1. Grasp the money supply concept

2. Differentiate between a demand deposit and time deposit

3. Study the lexicon of public and personal finance

Read the following text and do the exercises given after it

How much money is there in the USA? Before we can answer that question, we need to
redefine a couple of concepts:

A demand deposit is an amount that is on deposit in a checking account. It is called a

demand deposit because it can be claimed immediately—on demand—by presenting a properly
made-out check, withdrawing cash from an automated teller machine, or by transferring money
between accounts.

A time deposit is an amount that is on deposit in an interest-bearing savings account.

Savings institutions generally permit immediate withdrawal of money from savings accounts.
However, they can require written notice prior to withdrawal.

Time deposits are not immediately available to their owners, but they can be converted to
cash easily. For this reason, they are called near-monies.

Money supply is the total amount of money that exists in the economy of a country at a
particular time.

The m1 supply of money consists only of currency and demand deposits. By law, currency
must be accepted as payment for products and resources. Checks are accepted as payment because
they are convenient, convertible to cash, and generally safe.

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 The m2 supply of money consists of m1 (currency and demand deposits) plus certain
specific securities and small-denomination time deposits. Another common definition of money
— m3 — consists of m1 and m2 plus large time deposits of $100,000 or more. The definitions of
money that include the m2 and m3 supplies are based on the assumption that time deposits are
easily converted to cash for spending.

So, there are at least three measures of the supply of money. (Actually, there are other
measures as well, which may be broader or narrower than m1, m2, and m3.) So, the answer to our
original question is that the amount of money in the United States depends very much on how we
measure it.

I. COMPREHENSION

A) Mark the statements with true or false and correct the false ones:

1. The amount of money that exists in the economy of a country depends on how the money is
measured.

2. A time deposit is an amount that is on deposit in a checking account.

3. Demand deposit is money that you have on your cash card.

4. Time deposits are also called near-monies because they can be easily converted into cash.

5. There are only 3 measures of the supply of money.

6. The interest on money in a checking account is lower than the interest on money in a savings
account.

B) Complete the following formulae: money supply in the USA:

M1 = _____________________________________________

M2 = _____________________________________________

M3 = _____________________________________________

II. STUDY THE TEXT

Personal finance: employees may receive the money they have earned as weekly wages
in cash (if they are blue-collars), or as monthly salary in a current account (if they are

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professionals). In the latter case, the current account (U.S. checking account) is where they pay
in their earnings and from where they withdraw money to pay their everyday bills. Holders can
withdraw their money with no restrictions, but they receive little interest.

The bank sends them a bank statement telling them how much money is in their account.
They can also give an instruction to the bank to pay fixed sums of money to certain people at stated
times by a standing order. People can also withdraw from their current account more money than
they actually have in it. It means that they overdraw their account. Generally, people avoid having
an overdraft because in the end they will pay a lot of interest to the bank.

People may also save up money. They open a savings account where they deposit any
extra money that they have and only take it out when they intend to spend it on something special.
When they invest money in a deposit account (u.s. time account), the customers receive a high
rate of interest but withdrawals require prior notice. If they want to buy their own house, which is
a big investment, they may take a bank loan for which they must leave a pledge. If the bank grants
them this loan, they have a mortgage.

When you purchase in a shop, you may pay in cash or by credit card. In some shops it is
possible not to pay outright, but on credit. If you buy in bulk, you may be offered a discount.
With such goods as cars, refrigerators or furniture, you may pay the full amount or you may pay
in instalments.

Public finance: people, the disadvantaged ones in particular, may receive some money
from the government as well, as a form of social security. For instance, the government pays out
pensions, unemployment benefits, disability allowances, child allowance, and grants and
scholarships to help students pay for studying.

In order to be able to redistribute some money, the government has to form the budget first
and cover its expenses according to its fiscal policy. The government levies the money it needs
from citizens through various taxes. Income tax is the tax collected on individuals’ wages and
salaries. Inheritance tax is levied on what people inherit from others as a legacy.

III. Which words in the text given in bold are defined below? Give their translation

1. Money which is in the form of coins and banknotes _________________

2. An amount of money you receive weekly in return for labour _______________

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3. Extra percentage paid on a loan _______________________

4. A fixed amount which is paid monthly to workers of higher rank ______________

5. The amount of money borrowed from a bank greater than that which is in your account
_________________________

6. Loan to purchase property, used as security for this loan _________________

7. A piece of paper that shows how much you owe somebody for goods and services _______

8. A guarantee for a loan ____________________________________________

9. An account with a higher rate of interest but requiring notification in advance for

Withdrawing the funds ________________________

10. An account with low interest but with no restrictions for withdrawal ___________

11. Money paid by the state to a person when he/she retires _____________________

12. Money given by the government to students for their education _______________

13. Money paid to people that are made redundant ______________________

14. Money paid to people with a handicap ________________________

15. Money received from someone in his/her will ___________________________

V. Group the following words under the headings:

Salary, bill, mortgage, debt, tax, fare, fine, bonus, fee, legacy, rent, premium, subsidy, deposit,
royalties.

Money to receive Money to pay

VI. Fill in the blanks with some of the words from the left column

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1. All the workers in our firm get a Christmas _____________ of $200.

2. Farmers are waiting for the new _________________ to help them grow cereals.

3. After their uncle’s death they each received a _______________ of $25,000.

VII. Fill in the blanks with some words from the right column

1. How much is the ______________ from the airport to the Hilton hotel?

2.You have to pay a ______________ for breaking the speed limit.

3.This man has finished dinner, he wants the ______________. He is raising his arm to call the
waiter.

VIII. WORD STUDY

Choose the correct definition for the following vocabulary items that are formed with the
word cash. Use the explanatory dictionaries.

1. Cash flow is

A) the conversion rate between currencies;

B) money which is immediately available;

C) movement of money into and out of business.

2. Petty cash is

A) small denomination coins;

B) money held in a business to cover small expenses;

C) pocket money given to children.

3. Cash dispenser is

A) someone who spends money;

B) machine in or outside a bank from which you can get money with a card;

C) device used to sort out money.

4. Cash register is
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A) machine used in shops to record the money;

B) a special book where you keep the record of money coming in and getting out;

C) person who records money in a bank.

5. Cash-and-carry is

A) method to pay for the transport of goods;

B) large shop where goods are paid at cheaper prices and removed by customers;

C) money you receive for delivering the goods.

6. Cash cow is

A) animal bred to be sold;

B) part of business that brings enough profits;

C) someone you can cheat to get undue money.

7. Cash discount is

A) reduction in a price if you pay immediately;

B) reduction of the sum of money you owe;

C) reduction in a price if you buy goods in bulk.

8. Cash desk is

A) a table in which you keep money;

B) a television company office that deals with monetary issues;

C) place in a shop where you pay for goods that you have bought.