MGT411 GDB 2 Spring 2011 idea Solution June 2011

[Vuhelper]

Question
Money Aggregate or money supply plays a crucial role in any economy, which not only
counts the money supply at specific time period but also useful in taking different
economic decisions. Definitions of different money aggregate are somehow loosely
defined but all the economists differentiate and classify M1, M2 & M3 on the single
Accepted base.
Give answer in keywords only:
Q#1.What is the main characteristic that distinguishes the different money
aggregate definitions?
Solution:
The main characteristic that distinguishes the different money aggregate definitions is
Liquidity.
2. Which money aggregate definition is mostly used in economic decision around the
world?
Solution:
M2 is used in economic decisions.
3. Justify answer given against part-b. (Provide only one reason)
Solution:
Economists use M2 when they want to quantify the amount of money in circulation and
try to explain different economic monetary conditions. M2 is a key economic indicator
used to forecast inflation.

[B][/B]