In an economic statistics report of a country, the total currency in circulation outside c… — JAMB UTME

In an economic statistics report of a country, the total currency in circulation outside commercial banks is $\text{N}300\text{ billion}$ and demand deposits held in commercial banks total $\text{N}500\text{ billion}$ . In addition, savings deposits stand at $\text{N}250\text{ billion}$ . What is the value of the narrow money supply ( $M_1$ ) in billions of Naira?

Answer: 800 billion Naira

Answer

The narrow money supply (

M_1

) is 800 billion Naira.

Narrow Money (

M_1

) includes only currency outside commercial banks and demand deposits. Adding

\text{N}300\text{ billion}

and

\text{N}500\text{ billion}

gives

\text{N}800\text{ billion}

. Savings deposits are excluded from

M_1

Step-by-Step Solution

Identify the components of Narrow Money (

M_1

Narrow Money (

M_1

) consists of currency in circulation outside banks plus demand deposits in commercial banks.

Savings deposits are classified as quasi-money (near money) and belong to Broad Money (

M_2

), not

M_1

Sum currency outside banks and demand deposits.

\text{N}300\text{ billion} + \text{N}500\text{ billion} = \text{N}800\text{ billion}

Adding these two components gives the narrow money aggregate (

M_1

Key Concept

Components of Narrow Money Supply (M1)

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