While there are a number of different methods by which one can define money. However, there are only a few standard methods to define it. The standard ways of defining money are through demand deposits and currency in circulation.

Monetary analysis by several analysts in the private and public sectors has revealed that money supply can be changed owing to its possible effects on inflation, business cycle and price level. The supply of money has an effect on the price levels in both long term and short term ways. In the long run effect, the money supply increase is directly proportional to price level increase. This means that the raise in the supply of money will hike up the domestic price level to a larger extent for a long time.

Again, the increase in money supply is least likely to result in inflation in the long run when an economy is functioning above the normal margin of unemployment. In the short term, the exchange rate increases under the impact of increase in money supply. Then again, in the long run, the exchange rate decreases as the real supply of money gradually goes on diminishing by price over time. Several economists believe that the supply of money should be considered crucial in controlling the rate of inflation. These economists believe that only if money demand remains stable there can be an increase in the supply of money resulting in inflation.

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