Money supply - How much is there?

What this is all about is the the amount of money in an economy.  The amount of money in circulation is important, because that partially determine how much money we can acquire to spend for goods and services.  This can  be especially when cash flow slows down.  When people don't have money they can spend, cash flow decreases. 

So we're going to discuss the sources of the money supply.

First, there is the amount of money printed.  Money is printed by the government and put into circulation, and people earn money in their jobs.  The government can increase the amount of currency in circulation by deficit spending.  This can cause inflation in times of economic expansion, but it can prevent, or reduce recessions in times of economic constriction (in other words, deficit spending does NOT increase inflation during a recession)..

Second, there is credit.  Another source of money is credit, which is actually tomorrow's money used today (we spend it today and pay it back tomorrow).  When the supply of money decreases and/or the speed of circulation decreases, as occurs in a recession, credit can fill in the gap.  Unfortunately, a collapse of credit can in itself decrease the money available, which can cause a recession.  This has happened more than once in our history.  Further, when recessions occur for other reason, people hold on to their money, they borrow less because of an uncertain future, and loans can also become harder to obtain.

Government spending:  When all this happens, government spending, often based on government borrowing, bolsters the economy by putting more money into circulation, thereby keeping earnings and spending higher.

Some folks assume federal spending should be like personal spending, that in both cases spending should not exceed income.  While there is some truth in that assumption, it is not entirely the case.  See below for further explanation.