An economy has currency of 10 million, stock market asset of 2 million, and government debt...

An economy has currency of 10 million, stock market asset of 2 million, and government debt of 1 million. There is no demand deposit in the banking system. What is the money supply in the economy?

10 million,

12 million,

13 million,

3 million

Solutions

Expert Solution

Money supply in an economy includes all the currency and other liquid instruments on the date it is measured. It roughly includes both cash and deposits that can be used almost as easily as cash.

We have been given three different types of assets - currency, stock market assets, and government debt.

Note that since stock market assets are not the deposits that can be used almost as easily as cash, they are not a part of the money supply in the economy. Also, government debt is not a part of the money supply in the economy.

Thus, the Money supply in the economy = Currency in circulation in the economy = 10 million

Thus, the 1st option is the correct answer.

Rahul Sunny answered 1 year ago

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