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Definition of Supply

Supply Image 1


An amount made available for sale, always associated with a given price.

Related Terms:

Floating supply

The amount of securities believed to be available for immediate purchase, that is, in the
hands of dealers and investors wanting to sell.

Money supply

M1-A: Currency plus demand deposits
M1-B: M1-A plus other checkable deposits.
M2: M1-B plus overnight repos, money market funds, savings, and small (less than $100M) time deposits.
M3: M-2 plus large time deposits and term repos.
L: M-3 plus other liquid assets.

Raw material supply agreement

As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.

Supply shock

n event that influences production capacity and costs in an economy.

Visible supply

New muni bond issues scheduled to come to market within the next 30 days.

supply-chain management

the cooperative strategic planning,
controlling, and problem solving by a company and
its vendors and customers to conduct efficient and effective
transfers of goods and services within the supply chain

Aggregate Supply

Total quantity of goods and services supplied.

Supply Image 2

Aggregate Supply Curve

Combinations of price level and income for which the labor market is in equilibrium. The short-run aggregate supply curve incorporates information and price/wage inflexibilities in the labor market, whereas the long-run aggregate supply curve does not.

Excess Supply

A situation in which supply exceeds demand.

Real Money Supply

Money supply expressed in base-year dollars, calculated by dividing the money supply by a price index.

Supply-Side Economics

View that incentives to work, save, and invest play an important role in determining economic activity by affecting the supply side of the economy.

Corner A Market

To purchase enough of the available supply of a commodity or stock in order to
manipulate its price.

Federal credit agencies

Agencies of the federal government set up to supply credit to various classes of
institutions and individuals, e.g. S&Ls, small business firms, students, farmers, and exporters.

Market clearing

Total demand for loans by borrowers equals total supply of loans from lenders. The market,
any market, clears at the equilibrium rate of interest or price.

Market segmentation theory or preferred habitat theory

A biased expectations theory that asserts that the
shape of the yield curve is determined by the supply of and demand for securities within each maturity sector.

Monetary policy

Actions taken by the Board of Governors of the Federal Reserve System to influence the
money supply or interest rates.

Open-market operation

Purchase or sale of government securities by the monetary authorities to increase or
decrease the domestic money supply.

Preferred habitat theory

A biased expectations theory that believes the term structure reflects the
expectation of the future path of interest rates as well as risk premium. However, the theory rejects the
assertion that the risk premium must rise uniformly with maturity. Instead, to the extent that the demand for
and supply of funds does not match for a given maturity range, some participants will shift to maturities
showing the opposite imbalances. As long as such investors are compensated by an appropriate risk premium
whose magnitude will reflect the extent of aversion to either price or reinvestment risk.

Short squeeze

A situation in which a lack of supply tends to force prices upward.

Soft dollars

The value of research services that brokerage houses supply to investment managers "free of
charge" in exchange for the investment manager's business/commissions.

Technical analysts

Also called chartists or technicians, analysts who use mechanical rules to detect changes
in the supply of and demand for a stock and capitalize on the expected change.

Technical condition of a market

Demand and supply factors affecting price, in particular the net position,
either long or short, of the dealer community.

Treasurer's check

A check issued by a bank to make a payment. Treasurer's checks outstanding are counted
as part of a bank's reservable depostits and as part of the money supply.

strategic alliance

an agreement between two or more firms
with complementary core competencies to jointly contribute
to the supply chain

Zero curve, zero-coupon yield curve

A yield curve for zero-coupon bonds;
zero rates versus maturity dates. Since the maturity and duration (Macaulay
duration) are identical for zeros, the zero curve is a pure depiction of supply/
demand conditions for loanable funds across a continuum of durations and
maturities. Also known as spot curve or spot yield curve.

Accomodating Policy

A monetary policy of matching wage and price increases with money supply increases so that the real money supply does not fall and push the economy into recession.


Aggregate supply.

Balance of Payments

The difference between the demand for and supply of a country's currency on the foreign exchange market.

Deposit Creation

The process whereby the banking system transforms a dollar of reserves into several dollars of money supply.


The absence of equilibrium. Disequilibrium implies excess demand or excess supply and pressure for change.


A position in which there is no pressure for change, where demand and supply are equal.

Excess Demand

A situation in which demand exceeds supply.

Flexible Exchange Rate

An exchange rate whose value is determined by the forces of supply and demand on the foreign exchange market.

45-Degree Line

A line representing equilibrium in the goods and services market, on a diagram with aggregate demand on the vertical axis and aggregate supply on the horizontal axis.

Goodhart's Law

Whatever measure of the money supply is chosen for application of the monetarist rule will soon begin to misbehave.


A policy of decreasing the rate of growth of the money supply gradually over an extended period of time, so that inflation can adjust with smaller unemployment cost. Contrast with cold-turkey policy.

Market Mechanism

The system whereby using prices, the interaction of supply and demand allocates inputs and distributes outputs.


School of economic thought stressing the importance of the money supply in the economy. Adherents believe that the economy is inherently stable, so that policy is best undertaken through adoption of a policy rule.

Monetarist Rule

Proposal that the money supply be increased at a steady rate equal approximately to the real rate of growth of the economy. Contrast with discretionary policy.

Monetary Aggregate

Any measure of the economy's money supply.

Monetary Policy

Actions taken by the central bank to change the supply of money and the interest rate and thereby affect economic activity.

Money Multiplier

Change in the money supply per change in the money base.

Neutrality of Money

The doctrine that the money supply affects only the price level, with no long-run impact on real variables.

Price Adjuster

A firm that reacts to excess supply or excess demand by adjusting price rather than quantity. Contrast with quantity adjuster.

Price Flexibility

Ease with which prices adjust in response to excess supply or demand.

Quantity Adjuster

A firm that reacts to excess supply or excess demand by adjusting quantity rather than price. Contrast with price adjuster.

Quantity Theory of Money

Theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.

Say's Law

Belief that supply creates its own demand.


Central bank action offsetting money supply changes automatically generated by a balance of payments surplus or deficit under a fixed exchange rate system.


Units of ownership, also called shares, in a public corporation. Owners of such units, called shareholders, share in the earnings of the company through dividends. The price of a stock is determined by supply and demand in the stock market.

Transmission Mechanism

The channels by which a change in the demand or supply of money affects aggregate demand for goods and services.


The number of times during a year that the money supply turns over in supporting that year's economic activity, measured as the ratio of nominal income to the money supply.

Wage Flexibility

Ease with which wages adjust in response to excess supply or demand.

Advance material request

Very early orders for materials before the completion
of a product design, given the long lead times required to supply some items.

Two-bin system

A system in which parts are reordered when their supply in one
storage bin is exhausted, requiring usage from a backup bin until the replenishment







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