Money Supply is total quantity of money circulating in economy, controlled by central bank. Components: Currency in circulation (notes and coins held by public), Demand deposits (checking accounts, immediately withdrawable), Savings deposits (part of M3), Time deposits (part of broader measures). Monetary aggregates (India): M0 (narrow money, currency and reserves), M1 (M0 + demand deposits), M2 (M1 + savings with post office), M3 (M2 + time deposits, broadest measure). Money supply vs. monetary base: Base (currency issued by central bank, controlled directly), Money supply (broader, including deposits, multiplied through banking). Expansion mechanism: Central bank increases base → Banks hold as reserves → Banks lend excess → Borrowed funds create deposits → Deposits become part of money supply → Money multiplier effect (M = Base × Multiplier). Contraction mechanism: Reverse of above; central bank reduces base, limiting lending, reducing deposits. Velocity of money: How fast money circulates (frequency of transactions); relates to GDP (GDP = M × V). Inflation relationship: Rapid money supply growth causes inflation (too much money chasing goods). Indian context: RBI controls money supply through open market operations, CRR, SLR. ICAI focus: Components, monetary aggregates, expansion/contraction mechanism. Exam tip: "Money supply growth > output growth causes inflation"; velocity affects inflation impact of money supply.