Who controls M2 money supply?

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The monetary base is intricately linked to the size of the Fed's balance sheet, serving as the foundation upon which the nation's monetary system is built. It comprises two primary components: currency in circulation and deposit balances held by depository institutions with the Federal Reserve.

Currency in circulation refers to the physical notes and coins that are actively used by individuals and businesses for daily transactions. This portion of the monetary base directly affects the public's access to cash and, consequently, their spending power.

Deposit balances, on the other hand, represent the funds that banks and other financial institutions hold with the Fed. These balances serve as a reserve for the institutions, enabling them to meet their obligations to customers and maintain liquidity.

The Federal Reserve, commonly known as the Fed, plays a pivotal role in managing the economy by controlling the supply of money. This process involves adjusting the monetary base, a key factor influencing the overall money supply in circulation.