Question : ______ are known as narrow money.
Option 1: M1 and M2
Option 2: M2 and M4
Option 3: M3 and M2
Option 4: M1 and M4
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Correct Answer: M1 and M2
Solution : The correct option is M1 and M2 .
M1: It includes the most liquid forms of money, such as physical currency (coins and notes) in circulation and demand deposits (checking accounts) that can be quickly converted to cash.
M2: It includes M1 along with slightly less liquid assets. In addition to the components of M1, M2 incorporates savings accounts, time deposits, and other near-money assets that may take a little more time to convert to cash.
These two are considered narrow money, as both are liquid forms of money.
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