Question : The measures of money supply, namely, M1, M2, M3 and M4, in this order, indicate:
Option 1: decreasing order of earning
Option 2: increasing order of liquidity
Option 3: decreasing the order of liquidity
Option 4: decreasing order of store of value
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Correct Answer: decreasing the order of liquidity
Solution : The correct option is decreasing the order of liquidity.
The measures of money supply M1, M2, M3, and M4, in that order, indicate a decreasing level of liquidity. M1: This includes the most liquid forms of money. It consists of physical currency (like coins and notes) held by the public and demand deposits (checking accounts) in banks. M2: This includes M1 plus additional forms of money that are not immediately spendable. It encompasses savings deposits, time deposits, and money market funds. M3: This is a broader measure and includes M2 along with large time deposits, institutional money market funds, and other larger liquid assets. M4: This is the broadest measure and includes M3 along with all other financial assets held by the public, including government securities.
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