what is broad money 
broad money is a category for measuring the amount of money circulating in an economy it is defined as the most inclusive method of calculating a given country s money supply and includes narrow money along with other assets that can be easily converted into cash to buy goods and services understanding broad moneybecause cash can be exchanged for many kinds of financial instruments it is not a simple task for economists to define how much money is circulating in the economy money supply is measured in different ways economists use a capital letter m followed by a number to refer to the measurement they are using in a given context the formula for calculating money supply varies from country to country broad money is the broadest measure encompassing narrow money such as cash and checkable deposits along with less liquid assets such as certificates of deposit foreign currencies money market accounts marketable securities treasury bills and anything else that can be easily converted into cash but not including company shares example of broad moneyin the united states the most common measures of money supply are m1 and m2 in march 2006 the federal reserve stopped publishing m3 statistics 1 these measurements vary according to the liquidity of the accounts included m0 typically includes only the most liquid instruments such as coins and notes in circulation at the other end of the scale is m3 which is categorized as the broadest measurement of money different countries define their measurements of money in slightly different ways in academic settings the term broad money is used to avoid misinterpretation in most cases broad money means the same as m3 while m0 and m1 usually refer to narrow money the federal reserve tracks m1 and m2 money supply m1 is defined as currency in the hands of the public travelers checks demand deposits and checking deposits m2 includes m1 plus savings accounts money market mutual funds and time deposits under 100 000 1 benefits of broad moneywidening the scope of the total money in circulation comes with several advantages above all it helps policymakers to better grasp potential inflationary trends central banks often look at broad money alongside narrow money to set monetary policy economists have found close links between money supply inflation and interest rates central banks such as the federal reserve use lower interest rates to increase the money supply when the goal is to stimulate the economy conversely in an inflationary setting interest rates are raised and the money supply diminishes leading to lower prices in simple terms if there is more money available the economy tends to accelerate because businesses have easy access to financing if there is less money in the system the economy slows and prices may drop or stall in this context broad money is one of the measures that central bankers use to determine what interventions if any they could introduce to influence the economy 