Texas A&M University (TAMU) ECON410 Macroeconomic Theory Practice Exam 1

Money supply refers to the total amount of monetary assets available in an economy at a specific time, which encompasses not just physical currency but also various forms of money that can be readily used for transactions. This includes not just cash and coins in circulation, but also demand deposits, savings accounts, and other liquid assets that people can access and use for purchasing goods and services. Understanding money supply is crucial because it influences inflation, interest rates, and overall economic activity.

Options that focus solely on narrow definitions—like only considering physical currency in circulation or the amount of cash held by banks—fail to represent the broader concept of money and its role in the economy. By encompassing all forms of monetary assets, the correct choice provides a more comprehensive view that aligns with macroeconomic studies regarding the availability of money and its effects on economic variables.