Published Oct 25, 2023 Narrow money refers to the most liquid forms of money in an economy, typically consisting of physical currency (coins and banknotes) and highly liquid financial assets like checking accounts. It is called “narrow” because it represents a narrower measure of money supply compared to broader measures that include less liquid forms of money such as savings accounts and time deposits. Let’s say you have $100 in cash and $500 in your checking account. In this case, the combined value of physical currency and checking account balances (narrow money) is $600. However, if you also have $1,000 in a savings account, the measure of narrow money would only be $600, as the savings account balance is not included. Understanding the concept of narrow money is crucial for economists, policymakers, and central banks as it provides insight into the liquidity and monetary conditions of an economy. By monitoring changes in narrow money supply, policymakers can make informed decisions regarding monetary policy such as adjusting interest rates or implementing measures to control inflation. It also helps in analyzing economic indicators such as consumer spending, savings rates, and the overall health of the financial system.Definition of Narrow Money
Example
Narrow money is the most accessible form of money and is commonly used for daily transactions. It allows individuals and businesses to make purchases, pay bills, and withdraw cash easily, making it an essential component of the economy.Why Narrow Money Matters
Economics