how does the m1 money supply affect inflation 
as the federal reserve increases the money supply money is easier to come by debt usually costs less or tax breaks approved by the federal government may reduce tax liabilities as a result consumers have more capital available to spend an unfortunate downside of increasing the money supply is that the demand for goods broadly increases as consumers have greater purchasing power as a result prices for good broadly tend to increase for example when the cost of debt is low and the money supply increases the cost of taking a home mortgage i e mortgage rates are low thus applying upward pressure on housing prices the bottom linethe m1 money supply consists of the sum of currency demand deposits and other liquid deposits each component is often seasonally adjusted and this measurement contains only the most liquid vehicles compared to other money supply measurements the money supply often directly relates to inflation and the federal reserve often manages the money supply via fiscal and monetary policy to influence the economy correction may 14 2023 an earlier version of this article incorrectly stated that the m0 money supply is equal to the amount of currency in circulation in fact m0 also includes the reserve balances held by banks at the federal reserve 