ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Definition of. Broad money (M3) Broad money (M3) includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares/units and debt securities up to two years.

Detailed explanation-2: -Therefore, one can express it in terms of the following formula: M2 = M1 + savings deposits + retail money market mutual funds + time deposits + money market deposit accounts. (M1 encompasses coins and currency in circulation, checkable demand deposits + traveler’s checks, etc.)

Detailed explanation-3: -Description: M3 is a measure of broad money and includes currency with the public and deposits. The Reserve Money factor shows the reserve money and includes required reserve and the excess reserves of the banking system.

Detailed explanation-4: -Besides all the components of M1, it includes net time deposits (or fixed deposits or term deposits) of the people with the commercial banks. Therefore, M3 is also called broad money.