Question

Which of the following statements correctly lists the different definitions of money in Australia, from the narrowest to the broadest?

		M1, M2, M3, M4
		Narrow money, M3, Broad money
		Currency, M1, Broad money, M3
		Currency, M1, M2, Broad money.
		Currency, M1, M3, Broad money

Answer 1

Sol:

Answer is Currency, M1, M3, Broad money

Monetary policy is the process by which the Reserve Bank of Australia (RBA) manages the money supply in the economy to achieve specific goals.

The different definitions of money in Australia, from the narrowest to the broadest is as follows:

1) Currency - It is the most liquid measure of the money supply. It comprises holdings of notes and coin by the private sector, deposits of banks with the Reserve Bank, and other Reserve Bank liabilities to the private sector.

2) M1 - The M1 is a very liquid measure of the money supply. It comprises of  currency plus bank current deposits from the private non-bank sector. It contains cash and assets that can quickly be converted to currency.

3) M3 - It comprises of M1 plus all other Authorised Deposit-taking Institution (ADI) deposits from the private non-bank sector plus certificates of deposit issued by banks less ADI deposits held with each other.

4) Broad money - Broad money is comprises of M3 plus borrowings from the private sector by non-bank financial intermediaries (including cash management trusts) less their holdings of currency and bank deposits. This measure is generally used to estimate the entire supply of money within an economy. It is the widest definition of money published by the Reserve Bank of Australia.