QCAA Economics External Practice Test

Money supply is the stock of liquid financial assets that people and businesses can use for spending. The description given includes currency circulating outside banks plus deposits in banks, credit unions and building societies, along with funds held by other authorised deposit-taking institutions. That combination covers cash plus the broadest set of ready-to-spend and transferable funds across the financial system, which is why this measure is the broad money category known as M3. It goes beyond simply currency or a narrow subset of deposits by including deposits held across all ADIs, giving a fuller picture of the money available for transactions and lending in the economy. The other options aren’t money supply measures: open market operations are policy tools used to influence the money supply, the inflation rate measures price changes, and the cash rate target is the central bank’s policy rate.