Question

Briefly define broad money and base money.

Answer 1

Broad Money:-

For a given country, the most appropriate method for calculating money supply, the totality of assets of households, the business can use to make payments or to hold as short term investment such as currency, funds in bank accounts etc, for all of the above calculations the most appropriate method used which is called broad money.

Broad Money is the most flexible method for measuring money supply of an economy, accounting for cash and other assets easily converted into currency.

Base Money :-

A monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in the commercial bank deposits held in the central bank's reserves.

This measure of the money supply typically only includes the most liquid currencies, it is also called as the money base.