What is money Stock and how it relates to the money supply S

What is money Stock and how it relates to the money supply?

Solution

Money stock is defined as the sum of notes and demand and time deposits with the commercial banks.

Money supply increases or decreases with the increase or decrease in money stock. Thus commercial banks control the money supply by either increasing or decreasing the money stock held with them. The more the money stock held with commercial banks the money supply will be higher and when less money stock is held the money supply will also be less.