XI. Read the text and choose the correct word or words from a, b, c or d to fill in each gap: Money supply

Governments measure the money supply in their countries ___1___ information about ___2___ in aggregate demand, the state of financial market and the need for and ___3___ of monetary policy.

Measuring the money supply is not as easy as it might first appear. This is because it is difficult to decide what to include in any measure of money. Economists define ___4___ as money if they ___5___ the functions of money. However, ___6___ to which items carry out these functions varies and can change over time. As a result, governments use a variety of measures of the money supply which are occasionally altered to reflect developments in ___7___ carried out by particular items.

The measures of the money supply can be divided into narrow and broad measures. Narrow measures focus on items which are used primarily as a means of exchange, whereas broad measures include items which are used not only as a means of exchange but also as a store of value.

In the UK the measure of narrow money is M0. This consists of notes and coins and banker’s deposits with the Bank of England. These deposits are used by banks ___8___ debts between each other and ___9___ cash when needed. M0 is sometimes referred to as the monetary base or high-powered money.

M4 is the UK’s broad measure. This includes notes and coins and bank and building society deposits.

1	A	to call	B	to require	C	to gain	D	to expect
2	A	trends	B	courses	C	senses	D	directions
3	A	decisiveness	B	sufficiency	C	efficiency	D	satisfaction
4	A	details	B	items	C	features	D	particulars
5	A	affect	B	produce	C	effect	D	carry out
6	A	the extent	B	the part	C	the plot	D	the potion
7	A	the shares	B	the elements	C	the notes	D	the roles
8	A	to decide	B	to settle	C	to solve	D	to bid
9	A	to draw	B	to seize	C	to withdraw	D	to rent

XII. Tasks for thought.

1. In what way would you expect each of the following items to affect the demand for real money balances?

a) An increase in real income.

b) An increase in confidence about future.

c) An increase in the opportunity cost of holding money.

d) A fall in nominal interest rates.

e) An increase in the price level.

f) An increase in the interest differential between risky assets and time deposits.

g) An increase in uncertainty concerning future transactions.

h) A fall in the frequency of income payments - for example, a switch from weekly to monthly payment.

2. Which of the following situations would entail an increase in the transactions demand for money?

a) A general rise in consumer prices.

b) An expected general rise in consumer prices.

c) The extension of value-added tax to goods which were previously zero-rated.

d) An increase in the level of real income.

e) An increase in the standard rate of income tax.

f) A fall in interest rates.

3. In which of the following circumstances would a rise in interest rate be expected ?

a) A fall in money supply.

b) An increase in money demand.

c) A rise in liquidity preference.

d) A fall in the price of bonds.

e) An increase in consumer prices.