The total stock of money in circulation among the public at a particular point…

2021

The total stock of money in circulation among the public at a particular point of time is called _____.

  1. A.

    Money multiplier

  2. B.

    Reserve money

  3. C.

    Money supply

  4. D.

    Narrow money

Attempted by 3 students.

Show answer & explanation

Correct answer: C

Money supply is the technical term in monetary economics for the total stock of money -- currency held by the public plus demand and time deposits with banks -- that is in circulation with the public at a given point in time. It is distinct from the monetary base (reserve money), from which it is created via the banking system's credit-creation (money-multiplier) process.

The question asks for the general name of ‘the total stock of money in circulation among the public at a particular point of time.’ That phrase is the standard textbook definition of money supply.

Contrast with the other terms offered:

  • Reserve money (M0) is only the monetary base -- currency in circulation plus banks' deposits with the RBI -- not the wider stock circulating with the public; it is the input from which the public's money stock is created, not the stock itself.

  • The money multiplier is a ratio (coefficient) linking the monetary base to the broader stock of money; it is a number, not a quantity of money in circulation.

  • Narrow money is one specific, more restrictive measure (broadly currency plus demand deposits) used to compute the wider stock; it names a particular aggregate, not the general term for the total circulating stock.

Hence the total stock of money circulating with the public at a point in time is called money supply.

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