Question

Money supply is a __________ variable, as it refers to the total volume of money held by the __________ at a particular point of time.

(Choose the correct option to fill in the blanks)

• A. stock, banks
• B. flow, banks
• C. stock, public
• D. flow, public

Hint:

Money supply is measured at a point of time, so it is a stock. It is held by the public, not by banks.

Answer 1

The Correct Option is C

Step 1: Recall stock and flow:
A stock is measured at one point of time. A flow is measured over a period.

Step 2: Classify money supply:
Money supply is the total money held by the public on a given date. So it is a stock variable.
This removes (B) and (D), which call it a flow.

Step 3: Decide who holds it:
Money supply is the money held by the public, which means households and firms. Money held by banks is not counted.
So the second blank is public. Option (A) has banks, which is wrong.

Step 4: Why this matters:
Because it is a stock, we say money supply was a certain amount on a certain date.
Compare it with income, which is stated per year.

Final Answer:
Money supply is a stock variable held by the public. Option (C).