the money supply

Question 1

Narrow money (M1)

Answer 1

can be used directly for transactions. Its consists of all notes and coins in circulation, all deposits on which cheques can be drawn, and travelers’ cheques

Question 2

broad money

Answer 2

called M2 consists of M1 plus savings accounts in financial institutions and money market accounts. Savings accounts and money market accounts are considered part of broad money, such as savings can easily be converted into cash or transferred to a cheque account to be used as money

Question 3

coins

Answer 3

issued for the convenience of small everyday transactions

Question 4

notes

Answer 4

issued to purchase general g/s. However, notes are being used less for the purchase of dearer items.

Question 5

deposits on which cheques are drawn

Answer 5

this is considered money because a chequebook is equivalent to dollar bills in your pocket.

Question 6

traveler’s cheques

Answer 6

in foreign currency, can be used to purchase goods and services directly or can be changed into cash to do so

Question 7

Some ways in which the demand for money is affected by

• 3 i’s and the paranoid

Answer 7

Level of income, interest rates, and inflation as well as uncertainty about the future.

Question 8

What is the way in which these factors affect money demand
(TPS motives)

Answer 8

It is usually explained in terms of three motives for demanding money: the transactions, the precautionary and the speculative motives

Question 9

What is the transactions motive

Answer 9

It arises from the fact that most transactions involve exchange of money. Because it is necessary to have money available for transactions, money will be demanded. The total number of transactions made in an economy tends to increase over time as income rises. Hence, as income or GDP rises, the transaction demand for money also rises
rise in income/GDP= rise in transaction demand for money

Question 10

What is the precautionary motive

Answer 10

People often demand money as a precaution against an uncertain future. Unexpected expenses, such as medical or car repair bills, often require immediate payment. The need to have money available in such situations is referred to as the precautionary motive for demanding money

Question 11

What is the speculative motive

Answer 11

Money, like other stores of value is an asset. the demand for an asset depends on both its rate of return and its opportunity cost.The speculative motive for demanding money arises in situations where holding money is perceived to be less risky than the alternative of lending the money or investing it in some other asset. for ex. if a stock market crash seemed imminent, the speculative motive for demanding money would come into play; those expecting the market to crash would sell their stocks and hold the proceeds as money

Question 12

What is M0

Answer 12

notes and coins in cheqing account

Question 13

What is M1 (narrow defn. of money supply)

Answer 13

Notes and coins in cheqing account + travellers cheques

Question 14

What is M2 (broad defn. of money supply)

Answer 14

M1+ other methods of payments (bitcoin, online payment ,crypto)