Answer to Question #96089 in Macroeconomics for Reesha

Question

Which of the following statements regarding the measurements of money is/are correct? a) all the components of the m2 are readily available as a medium of exchange b) m1 consists of notes and coins held by the banks plus the demand deposits c) m3 is the best measure of the monetary sector development

Answer 1

c) m3 is the best measure of the monetary sector development

MI money supply consists of the federal reserve notes referred as paper money or bills and coins which are in circulation outside federal reserve banks and vaults of depository institutions. Thus, they are not held by banks, bank vaults or Treasury. M2 money supply consists of M1 plus savings accounts, small time deposits, and money market funds. M2 are thus not readily available as medium of exchange compared to M1.

M3 money supply on the other hand includes M2 plus large money market funds, large time deposits, and repurchased agreements. Although not currently being used but it the best measure of the monetary sector development because it covers broad areas.