Supply of money refers to currency held by the public and demand deposits with commercial banks.

Explanation:
- Currency held by the public: This refers to the physical cash held by individuals, businesses, and other entities in an economy. It includes notes and coins that are in circulation outside the banking system. When individuals hold cash, it becomes a part of the money supply as it is readily available for transactions.
- Demand deposits with commercial banks: Demand deposits are funds held in checking accounts or current accounts with commercial banks. These deposits can be withdrawn on demand by the depositors. When individuals deposit their money in banks, it increases the money supply as banks can use these deposits to extend loans and create more money through the process of fractional reserve banking.

Combining these two components, the supply of money includes both physical cash held by the public and the demand deposits with commercial banks. It represents the total amount of money available in an economy for transactions and other economic activities.

The supply of money plays a crucial role in determining the level of economic activity in an economy. It influences the overall liquidity and availability of funds for individuals, businesses, and the government. The level of money supply affects various economic variables such as inflation, interest rates, and investment levels.

In an economy, the central bank, such as the Reserve Bank of India (RBI), has the authority to control and regulate the supply of money. The central bank uses various monetary policy tools to manage the money supply and stabilize the economy. By adjusting interest rates, reserve requirements, and open market operations, the central bank can influence the money supply and control inflationary pressures.

Overall, the supply of money refers to the total amount of currency held by the public and the demand deposits with commercial banks. It is an important factor in determining the overall economic activity and stability of an economy.