Question

Consider the following statements
1. Broad money refers to money with highest liquidity
2. Narrow money refers to currency held by public and demand deposits in banks

Which of the above is / are correct?

• A. 1 only
• B. 2 only
• C. Both 1 and 2
• D. None of the above

Answer 1

The correct option is B 2 only

Narrow money refers to physical money, such as coins and currency, demand deposits and other liquid assets, that are easily accessible to central banks. Narrow money is the one which has highest liquidity

Broad money is a category for measuring the amount of money circulating in an economy. It is defined as the most inclusive method of calculating a given country's money supply, and includes narrow money along with other assets that can be easily converted into cash to buy goods and services.