Money Supply Calculator (M1 from currency, deposits & reserves)

Understanding the money supply calculator — concept and principle

This calculator builds the narrow money supply M1 and the monetary base from three amounts: currency held by the public, checkable deposits and bank reserves. It then derives the money multiplier and shows how the money supply changes when the central bank changes the base.

With 25% cash and 22.5% reserves relative to deposits, each unit of base money supports 2.632 units of M1.

How it is calculated

M1 = C + D (currency held by the public + checkable deposits).
Monetary base = C + R (currency + bank reserves).
Currency ratio c = C ÷ D; reserve ratio r = R ÷ D (required plus excess).
Money multiplier m = M1 ÷ base = (1 + c) ÷ (r + c).
New money supply = m × (base + change); change = m × change in base.

The principle

The central bank directly controls the monetary base: the cash in circulation and the reserves banks hold with it. Most of the money people actually use, however, is bank deposits. Dividing numerator and denominator of M1 ÷ base by D shows that the multiplier depends only on two behavioural ratios: how much cash the public keeps relative to deposits and how much reserves banks keep. If those ratios stay constant, any change in the base is scaled up by the same multiplier.

Worked example

Default inputs: C = 100, D = 400, R = 90, change in base = 10.

M1 = 100 + 400 = 500; base = 100 + 90 = 190.
c = 100 ÷ 400 = 25%; r = 90 ÷ 400 = 22.5%.
m = 500 ÷ 190 = 1.25 ÷ 0.475 ≈ 2.632.
New money supply = 2.632 × 200 ≈ 526.3; change = 2.632 × 10 ≈ 26.3.

Each point is the calculator re-run with only “Checkable deposits (D)” changed; the gold point is the default example. Change the inputs above and this chart follows your numbers.

Checkable deposits (D)	Money supply M1 = C + D
100	200
200	300
300	400
400	500
500	600
600	700
800	900

How to read the result

A multiplier above 1 means each unit of base money supports more than one unit of M1. A rising currency ratio (people hoarding cash, as in a banking panic) or a rising reserve ratio (banks holding back) lowers the multiplier, so the money supply can shrink even if the base is unchanged. This was a key mechanism in the US money contraction of the early 1930s.

Common mistakes

Counting bank reserves as part of M1; they are part of the base, not of money held by the public.
Using only required reserves when banks also hold excess reserves.
Assuming the ratios stay fixed during a crisis.
Mixing definitions: official M1 statistics include more items than this simplified model.

Keep in mind: A simplified textbook model. Official money supply statistics use broader definitions and central banks today mainly target interest rates. Not financial advice.

Frequently asked questions

What is the difference between M1 and the monetary base?

M1 is money the public holds (cash and checkable deposits); the base is cash plus bank reserves.

Can the central bank control M1 directly?

Not fully. It controls the base, but M1 also depends on the behaviour of the public and banks.

What is M2?

A broader measure that adds savings deposits, small time deposits and retail money market funds to M1.

Sources: Mishkin, F. S., The Economics of Money, Banking and Financial Markets (money supply process) · Friedman, M. & Schwartz, A. J. (1963). A Monetary History of the United States, 1867–1960

Checked 9 Nov 2026. Saylor Academy, “Money and Banking” v2.0, section 15.4 “A More Sophisticated Money Multiplier for M1” (M1 = C + D, MB = C + R, worked example with rr = 0.2, C = 100, D = 400, ER = 10, m = 2.6316).

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