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1. what are the types of money supply? 2. what is the relationship between money supply...

1. what are the types of money supply?

2. what is the relationship between money supply and interest rate ?

Homework Answers

Answer #1
  • There are different measures of Money Supply:
    • M0 and M1:These are called narrow money.This include coins and notes in use.Also other equivalents ,that are easily convertible to cash.
    • M2:This includes M1 and short term deposits in banks and 24 hour money market funds.
    • M3:This includes M2, long time deposits and money market funds that are more that 24 hour maturity.The definitions of these depends on the country.
    • M4:This includes M3 and other deposits.
  • If the interest rate decreases , this will increase the money kept in hands of people.Or,if the interest rate increases this will decrease the amount of money kept in hands of people.
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