The central bank of a country provides the following monetary statistics for a given finan… — JAMB UTME

The central bank of a country provides the following monetary statistics for a given financial period:

- Currency in circulation outside commercial banks: $\text{N}420\text{ billion}$
- Demand deposits with commercial banks: $\text{N}980\text{ billion}$
- Vault cash held by commercial banks: $\text{N}90\text{ billion}$
- Savings deposits: $\text{N}650\text{ billion}$
- Time deposits: $\text{N}350\text{ billion}$

Based on these data, what is the total broad money supply ( $M_2$ ) in this economy in billions of Naira?

Answer: 2400 billion Naira

Answer

The total broad money supply (

M_2

) in the economy is

2,400\text{ billion Naira}

Broad money supply (

M_2

) includes narrow money (

M_1

) plus quasi-money (savings deposits and time deposits).

M_1

is calculated as currency outside banks (

420\text{ billion Naira}

) plus demand deposits (

980\text{ billion Naira}

), totaling

1,400\text{ billion Naira}

. Adding savings deposits (

650\text{ billion Naira}

) and time deposits (

350\text{ billion Naira}

) yields

M_2 = 1,400 + 650 + 350 = 2,400\text{ billion Naira}

. Commercial bank vault cash is excluded as it is an internal reserve not available in active public circulation.

Step-by-Step Solution

Calculate Narrow Money (

M_1

)

M1 = 420 + 980 = 1,400 billion Naira

M1 consists of currency in circulation outside commercial banks and demand deposits. Vault cash is excluded as it is not held by the non-bank public.

Calculate Quasi-Money (Near Money)

Quasi-Money = 650 + 350 = 1,000 billion Naira

Quasi-money consists of financial assets that are liquid but not directly usable as a medium of exchange, specifically savings deposits and time deposits.

Calculate Broad Money (

M_2

)

M2 = 1,400 + 1,000 = 2,400 billion Naira

Broad money supply combines M1 with quasi-money.

Key Concept

Broad Money Supply (M2) Calculation

Estimated Time:1m 30s

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