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 Which of the following is known as broad money?

  • a)
    M1

  • b)
    M2

  • c)
    M3

  • d)
    M5

Correct answer is option 'C'. Can you explain this answer?
Verified Answer
Which of the following is known as broad money?a)M1b)M2c)M3d)M5Correct...
M3 is known as broad money as more items are included in this measure when compared to M1 which is known as narrow money.
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Most Upvoted Answer
Which of the following is known as broad money?a)M1b)M2c)M3d)M5Correct...
Broad money refers to the total amount of money in an economy that is readily available for spending and includes both physical currency and demand deposits held by individuals and businesses. It is a measure of the overall liquidity in an economy and is often used by economists and policymakers to assess the state of the money supply and its impact on economic activity.

In the context of the given options, M3 is known as broad money. Let's understand what each of the options represents and why M3 is considered broad money.

a) M1: M1 is the narrowest measure of money supply and includes only the most liquid forms of money. It consists of physical currency in circulation (cash) and demand deposits held by individuals and businesses in banks. M1 does not include time deposits or other less liquid forms of money.

b) M2: M2 is a broader measure of money supply that includes M1 plus time deposits, savings deposits, and money market mutual funds held by individuals and businesses. It is considered a broader measure of the money supply than M1 but does not capture all forms of money in the economy.

c) M3: M3 is the broadest measure of money supply and includes M2 plus large time deposits, institutional money market funds, and other less liquid forms of money held by institutional entities. It takes into account a wider range of financial assets and provides a more comprehensive view of the money supply in an economy.

d) M5: M5 is not a widely recognized measure of money supply. The commonly used measures are M1, M2, and M3, with M3 being the broadest.

Therefore, among the given options, M3 is known as broad money as it includes a wider range of financial assets and provides a more comprehensive view of the money supply in an economy.
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Community Answer
Which of the following is known as broad money?a)M1b)M2c)M3d)M5Correct...
M3 & M4 both are known as broad money
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Which of the following is known as broad money?a)M1b)M2c)M3d)M5Correct answer is option 'C'. Can you explain this answer?
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