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CBSE Class 12-commerce Answered

What is the narrow definition of money and broad definition of money?

Asked by Topperlearning User | 18 Apr, 2016, 10:57: AM
Expert Answer

Narrow definition of money is based upon its medium of payment function of money. It includes currency and demand deposits of banks. M1 and M2 are known as narrow money.  

Broad definition of money is based upon store of value function of money. It includes currency, demand deposits of banks, saving and time deposits of banks and post office. M3 and M4 are known as broad money.

If M3 and M4 measures are used, then it is known as broad money. M1 is the easiest and liquid form of transaction. M4 is the least liquid of all measures. M3 is the commonly used measure of money supply.

Answered by | 18 Apr, 2016, 12:57: PM
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