What does the total money supply consist of according to traditional measures?

What does the total money supply consist of according to traditional measures?

• A. Only cash on hand
• B. All financial assets
• C. Liquid working assets
• D. Currency and liquid instruments

Answer: (D)

The total money supply, according to traditional measures, primarily consists of currency and liquid instruments. Currency includes physical money such as coins and banknotes that are in circulation, while liquid instruments refer to assets that can be easily converted to cash, such as demand deposits and checking accounts. This definition is vital in understanding how money functions in the economy because it focuses on the readily available money that individuals and businesses can use for transactions. The measurement of money supply hinges upon its liquidity – the ease with which an asset can be converted to cash for immediate spending. Currency is the most liquid form, followed closely by checking accounts and certain other instruments. This approach to defining the money supply excludes less liquid financial assets or investments that may not be readily available for transactions, which are not considered in the traditional measures of money supply.

The total money supply, according to traditional measures, primarily consists of currency and liquid instruments. Currency includes physical money such as coins and banknotes that are in circulation, while liquid instruments refer to assets that can be easily converted to cash, such as demand deposits and checking accounts. This definition is vital in understanding how money functions in the economy because it focuses on the readily available money that individuals and businesses can use for transactions.

The measurement of money supply hinges upon its liquidity – the ease with which an asset can be converted to cash for immediate spending. Currency is the most liquid form, followed closely by checking accounts and certain other instruments. This approach to defining the money supply excludes less liquid financial assets or investments that may not be readily available for transactions, which are not considered in the traditional measures of money supply.