What is the definition of ‘Broad Money to Reserve Money’?

Broad Money is a known as a measure of money multiplier and is the most comprehensive method to calculate the money supply in a country. It is the overall combination of all assets that are used by households and businesses for holding as short-term investments like currency, money in banks or even for making payments. Thus, it has a far reach as it comprises money with the public and also in deposits. M3 is a measure of Broad Money.

On the other hand, the Reserve Money comprises required reserves along with the excess reserves of the banking system. If the foreseen reserve requirement increases, the value of Reserve Money will increase and bring a fall in the multiplier. Likewise, if banks also increase the money in their reserves, it will affect the multiplier adversely.


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