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Explain the Measurement of Money Supply

Explain the Measurement of Money Supply

Answers

Wilfred
To measure the money stock / money supply is not an easy task given that there is no consensus on exactly the level of money supply. Money supply is measured differently in different economies.
The following are the most commonly measures of money supply:

(i) Mo – This is the monetary aggregate which is referred to as the monetary base. Mo is a measurement that is called a wide measure rate and it comprises notes and coins in circulation out of the Central Bank. Mo comprises banks operational balances with the Central Bank.
(ii) M1 – These Monetary aggregate the following items
- Mo
- Private sector sight deposits i.e. excluding time deposits and sight deposits of the banking sector and public sector.
(iii) M2 - Measure of transaction balances and a comprises the following:-
- M1
- Private sector non interest bearing sight deposits
- Private sector interest bearing deposits in banks building societies and saving banks ordinary accounts.
(iv) M3 – Comprises the M2 plus private sector bank deposit i.e. both sight and time deposits denominated in foreign currency.
(v) M4 – comprises of M3 and its called the private sector liquidity. It also comprises building societies shares and deposits less building societies holding of M3
(vi) M5 – Comprises of M4 and other near money like marketable investments.
Wilfykil answered the question on March 8, 2019 at 11:36

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