Everything people and businesses can spend or quickly convert to spending power.
Money supply is the total quantity of money available in an economy at any given moment. It is not a single number but a set of nested measurements, each one broader than the last, because “money” itself is not just physical cash. A five-dollar bill is money. A checking account balance is money because the holder can write a check against it. A savings account earns interest but can be withdrawn on demand, so it functions as money too, though slightly less liquid. These distinctions matter because how much “money” exists in the economy depends on which measure you use.
Economists tier these measures by liquidity. M0 is the monetary base, the physical currency in circulation plus bank reserves held at the central bank. M1 adds in checking accounts and other demand deposits that are spendable immediately. M2, the most commonly cited measure, includes M1 plus savings accounts and money market funds that are easily converted to cash. M3 and beyond add progressively less liquid assets, like large institutional deposits. A central bank controls M0 directly through printing money and managing reserve balances. It influences M1 and M2 indirectly through interest rates and lending decisions, which determine how much banks are willing to lend and deposit-holders willing to save.
The distinction between these tiers reveals that the money supply is not something a central bank commands with absolute precision but rather a cascade of decisions by millions of banks and individuals. Expanding M0 does not guarantee M1 or M2 will expand at the same rate, because the banks receiving that new base money may choose to hold it as reserves rather than lend it out, or they may lend it in ways that leave the overall “spendable” money supply unchanged.
Source: Federal Reserve, “Money Stock Measures,” Federal Reserve Board of Governors; Mankiw, N.G. (2020), Principles of Economics, 10th ed., Cengage.