Money Supply Definition

Steps:

• Recall that money supply refers to all forms of money in circulation, including cash, deposits, and other liquid assets.
• Evaluate choices against standard economic definitions from sources like the Federal Reserve.
• Eliminate options limited to specific subsets like foreign currency or bank-issued money.
• Confirm the broadest, inclusive definition matches choice B.

Why B is correct:

• Money supply is defined as the total quantity of money available within the economy, encompassing M1 (cash and checking deposits) and broader measures like M2 (savings and money market funds), per central bank frameworks.

Why the others are wrong:

• A: Focuses only on foreign currency, ignoring domestic money like coins and bank deposits.
• C: Limits to central bank issuance, excluding commercial bank-created money through lending.
• D: Restricts to commercial banks, overlooking cash held by the public and central bank reserves.

Final answer: B