4.5.3 Money Supply

• The money supply is categorized into components such as M0, M1, M2, and M3
• What is the narrowest measure of money supply?

  M0
• Match the component of the money supply with its description:

  M0 ↔️ Physical cash and reserves at the central bank

  M1 ↔️ M0 plus current accounts

  M2 ↔️ M1 plus savings accounts

  M3 ↔️ M2 plus institutional deposits
• What is included in the broadest measure of the money supply (M3)?

  M2, institutional deposits, money market funds
• Order the factors affecting the money supply based on their primary impact:

  1️⃣ Central bank actions

  2️⃣ Bank lending

  3️⃣ Public's preference for cash vs. deposits

  4️⃣ Government spending and taxation
• Tighter lending standards by banks reduce the money supply.


  True
• Match the monetary policy instrument with its effect on the money supply:

  Open market operations ↔️ Increases or decreases money in circulation

  Reserve requirement ↔️ Limits bank lending

  Interest rates ↔️ Discourages borrowing or encourages saving
• The money supply is a key variable monitored by central banks as part of their monetary policy to influence economic activity and inflation.
• The component of the money supply known as M0 includes physical cash in circulation and banks' reserves held at the central bank
• Match the component of the money supply with its description:

  M0 ↔️ Narrow money

  M1 ↔️ Broad money

  M2 ↔️ Broader money

  M3 ↔️ Widest money
• An expansionary monetary policy, such as lowering interest rates, increases the money supply.
• Central banks use monetary policy instruments to control the money supply and influence economic activity.

  True
• Decreasing the money supply can help control inflation but may lead to higher unemployment.
• What does the money supply refer to in an economy?

  Total amount of money
• Changes in the money supply can influence economic activity and inflation.


  True
• The money supply includes physical cash and banks' reserves held at the central bank.
• The money supply is monitored by central banks as part of their monetary policy.


  True
• Central banks use the money supply as a tool in their monetary policy to manage economic activity and inflation.
• How does a central bank increase the money supply using open market operations?

  By buying government bonds
• If the public holds more physical cash, the overall money supply decreases.
• What is the impact of government spending on the money supply?

  Increases it
• What is moral suasion in monetary policy?

  Influence on bank lending
• What does the term "money supply" refer to in economics?

  Total money in economy
• The money supply is monitored by central banks as part of their monetary policy.


  True
• Order the categories of money supply from narrowest to widest:

  1️⃣ M0

  2️⃣ M1

  3️⃣ M2

  4️⃣ M3
• How does tighter lending standards by banks affect the money supply?

  Reduces the money supply
• Order the effects of increasing the money supply on the economy:

  1️⃣ GDP growth increases

  2️⃣ Inflation increases

  3️⃣ Unemployment decreases

  4️⃣ Interest rates decrease
• Central banks aim to balance economic growth and inflation by adjusting monetary policies.


  True