why does the money supply expand or contract 
consider a main street bank as a microcosm of the economy as a whole local people are prospering lately so they have more money to save they deposit it in the bank the bank keeps part of the deposits in a vault but lends most of it out to other individuals and businesses the loans are repaid with interest and the bank has more money to loan times are good and the money supply is increasing but what happens when times are not so good bank deposits fall because people are just getting by or worse losing their jobs the bank has less money to lend in any case businesses and individuals shy away from big spending due to the poor economy the money supply decreases the bottom linethe money supply may be one of the most tangible and understandable subjects in economics it s a count of every bit of cash floating around the entire u s economy every dollar and every coin down to the small change that people have in their pockets analyzing the number is harder economists want to know precisely where that money is and how is it being used is it being hoarded or splurged invested or spent on day to day necessities the federal reserve considers the money supply when evaluating what kind of monetary policy to enact 