Broad money
Encyclopedia
In economics
, broad money is a measure of the money supply
that includes more than just physical money such as currency and coins (also termed narrow money). It generally includes demand deposits at commercial banks, and any monies held in easily accessible accounts. Components of broad money are still very liquid, and non-cash components can usually be converted into cash very easily.
The most commonly used measure of broad money is M2, which includes currency and coins, and deposits in checking accounts, savings account
s and small time deposit
s, overnight repos
at commercial bank
s, and non-institutional money market accounts. This is the main measure of the money supply, and is the economic indicator
usually used to assess the amount of liquidity
in the economy, as it is relatively easy to track.
However broad money can have different definitions depending on the situation of usage, usually it is constructed as required to be the most useful indicator in the situation. More generally, broad money is just a term for the least liquid money definition being considered and less a fixed definition across all situations. As such broad money may have different implications in the United States than it does in Australia, and even from academic paper to paper. The term broad money will usually be more exactly defined before a discussion, when it is not sufficient to assume a wider definition of money.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, broad money is a measure of the money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
that includes more than just physical money such as currency and coins (also termed narrow money). It generally includes demand deposits at commercial banks, and any monies held in easily accessible accounts. Components of broad money are still very liquid, and non-cash components can usually be converted into cash very easily.
The most commonly used measure of broad money is M2, which includes currency and coins, and deposits in checking accounts, savings account
Savings account
Savings accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money . These accounts let customers set aside a portion of their liquid assets while earning a monetary return...
s and small time deposit
Time deposit
A time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time...
s, overnight repos
Repurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
at commercial bank
Commercial bank
After the implementation of the Glass–Steagall Act, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S...
s, and non-institutional money market accounts. This is the main measure of the money supply, and is the economic indicator
Economic indicator
An economic indicator is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles....
usually used to assess the amount of liquidity
Market liquidity
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...
in the economy, as it is relatively easy to track.
However broad money can have different definitions depending on the situation of usage, usually it is constructed as required to be the most useful indicator in the situation. More generally, broad money is just a term for the least liquid money definition being considered and less a fixed definition across all situations. As such broad money may have different implications in the United States than it does in Australia, and even from academic paper to paper. The term broad money will usually be more exactly defined before a discussion, when it is not sufficient to assume a wider definition of money.