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 _____.
- A.
Money multiplier
- B.
Reserve money
- C.
Money supply
- 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.