Chapter 23, Problem 4MCQ

To determine

The correct option that refers to the type is most liquid monetary aggregate.

Answer to Problem 4MCQ

Option a is correct.

Explanation of Solution

Explanation for correct option:

a.

M1 represents the money supply measure which includes only cash or checkable deposits that can be readily available for purchase. Therefore, option a is correct.

Explanation for incorrect options:

b.

M 2 includes money market instruments or near-money which are less liquid as compared to the money included in M1. Therefore, option b is incorrect.

c.

M3 is the sum of M1 and all the time deposits with the banks. Therefore, option c is incorrect.

d.

Near money refers to the money aggregates that include money market securities that can be converted into cash easily. Therefore, option d is incorrect.

e.

Dollar bills are issued to public for raising funds. These are also short-term securities traded in the money market. Therefore, option e is incorrect.

Economics Concept Introduction

Money: Money is the medium of exchange through which goods and services can be traded. It can perform three main functions i.e. medium of exchange, store of value and unit of account.

Monetary aggregates: It refers to the measures of overall money supply.