ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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transactional funds
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federal funds
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Certificate of deposits
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None of the above
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Detailed explanation-1: -M1 consists of currency notes and coins that are in circulaation with public as well as the demand deposits with commercial banks. These can be used by the public directly for any transactions. Hence, M1 is also known as ‘Transaction Money’.
Detailed explanation-2: -Definition of. Narrow money (M1) M1 includes currency i.e. banknotes and coins, plus overnight deposits. M1 is expressed as a seasonally adjusted index based on 2015=100.
Detailed explanation-3: -Therefore, transaction deposits are recorded in the M1 measure of money supply. M1 is calculated as: M1 = Currency + Coins + Checkable deposits(transaction deposits) + Traveler’s checks.
Detailed explanation-4: -M1 and M2 are known as narrow money. M3 and M4 are known as broad money. These gradations are in decreasing order of liquidity. M1 is most liquid and easiest for transactions whereas M4 is least liquid of all.
Detailed explanation-5: -M1 consists of the most liquid forms of money, namely currency, demand deposits, and other liquid deposits. Other liquid deposits includes ATS and NOW accounts, share draft accounts, and savings deposits. The non-M1 components of M2 are small-denomination time deposits and retail money market funds.