The central monetary authority of an economy published the following financial statistics … — JAMB UTME

The central monetary authority of an economy published the following financial statistics (in billions of Naira):

- Currency notes and coins held by the non-bank public: $380$
- Vault cash inside commercial bank tills: $70$
- Demand deposits of the non-bank public at commercial banks: $620$
- Savings and fixed time deposits at commercial banks: $950$
- Government deposits held at the central bank: $150$

Calculate the total value of narrow money supply ( $M_1$ ) in billions of Naira.

Answer: 1000 billion Naira

Answer

1000 billion Naira

Narrow money supply (

M_1

) comprises strictly currency in circulation outside the banking sector (

380\text{ billion Naira}

) and demand deposits (

620\text{ billion Naira}

) held by the public at commercial banks. Adding these two components gives

1000\text{ billion Naira}

. Vault cash, quasi-money (savings/fixed deposits), and government central bank balances are intentionally excluded from

M_1

Step-by-Step Solution

Define the components included in narrow money supply (

M_1

M_1 = \text{Currency in circulation outside banks} + \text{Demand deposits of the non-bank public}

Narrow money measures highly liquid assets readily available for medium of exchange transactions.

Filter out irrelevant financial figures.

Include

380\text{ billion Naira}

(currency with public) and

620\text{ billion Naira}

(demand deposits). Exclude vault cash (

70\text{ billion Naira}

), savings/time deposits (

950\text{ billion Naira}

), and government deposits at the central bank (

150\text{ billion Naira}

Vault cash is part of bank reserves; savings and time deposits constitute quasi-money (

M_2

); government central bank deposits are excluded from private/public money supply definitions.

Sum the relevant components to find

M_1

M_1 = 380 + 620 = 1000\text{ billion Naira}

Adding currency in circulation to demand deposits yields total narrow money supply.

Key Concept

Calculation of Narrow Money Supply (M1)

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