Question

The narrow measure of money supply is known as:

• A. M1
• B. M2
• C. M3
• D. M4

Answer 1

The Correct Option is A

The narrow measure of money supply is commonly referred to as M1. In economics, monetary aggregates are categorized to indicate the different types of money available in an economy. The measure M1 includes:

• Currency in circulation (physical coins and banknotes)
• Demand deposits (checking accounts)
• Other liquid deposits

The key characteristic of M1 is its high liquidity. This means the components of M1 can be quickly and easily used for transactions without losing value. M1 plays a crucial role in everyday financial transactions and serves as a primary indicator of money supply for policy makers.