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is the most inclusive of the money supply definitions that include cash, checking, savings, and institutional money market funds.

Question

Is the most inclusive of the money supply definitions that include cash, checking, savings, and institutional money market funds?

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Solution

The most inclusive definition of the money supply, which includes cash, checking, savings, and institutional money market funds, is referred to as M3.

Here are the steps to understand this:

  1. Economists and central banks classify money supply into different categories, M0, M1, M2, and M3, based on the type and accessibility of the money in the economy.

  2. M0 and M1, often referred to as narrow money, primarily include physical money such as coins and notes, and other money equivalents that are easily accessible and can be quickly converted into cash.

  3. M2 includes M1 and, in addition, short-term time deposits in banks and certain money market funds.

  4. M3, the most inclusive definition, includes M2 plus longer-term time deposits and money market funds that are less liquid than other components of the money supply. It represents money in the economy that is quickly and easily accessible for commercial and personal use.

So, M3 is the most inclusive definition of the money supply as it includes cash, checking deposits, savings deposits, and institutional money market funds.

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