By money supply we mean the total stock of monetary media of exchange available to a society for use in connection with the economic activity of the country. Supply of money refers to the total stock of money (in the form of currency notes and coins) held by the people of an economy at a particular point of time. The following are the components of money.

(i) Currency Component: It includes,
a) Currency notes in circulation issued by the Reserve Bank of India.
b) The number of rupee notes and coins in circulation.
c) Small coins in circulation.

(ii) Deposit Component: The other important components of money supply are demand deposits of the public with the banks. These demand deposits held by the public are also called bank money or deposit money. Deposits with the banks are broadly divided into two types: demand deposits and time deposits.

Demand deposits in the banks are those deposits which can be withdrawn by drawing cheques on them. Through cheques, these deposits can be transferred to others for making payments from which goods and services have been purchased. Whereas time deposit is a deposit in a bank account that cannot be withdrawn before a set date or for which notice of withdrawal is required.