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. The inclusion of these other assets makes broad money a more accurate measure of an economy's liquidity than narrower measures like M1 or M2.One reason to track broad money rather than just narrow measures is to get a better sense for how much credit is available in the economy. For example, if someone takes out a loan from their bank, that loan will show up as part of broader money supply but not on narrower measures like M1 or M2. By tracking broad money instead, we can get a better idea for how much credit is available in the economy overall. This is important because it helps policymakers understand when there might be too much debt or too little spending taking place in the overall economy.Another benefit of tracking broad money instead of narrower measures is that it gives us a more complete picture of the velocity of money in the economy. Velocity of the single currency refers to how often each unit is spent or used in transactions. A high velocity means that currency is moving around the economy quickly and being used frequently; a conversely, a low velocity means currency is in useless frequently .By tracking broad money supply instead of focusing on narrow measures like M1 or M2, we can better understand how much currency is transacting with in an economy at any given point in time. This information can help politicians and central bankers adjust monetary policies accordingly to respond to the changing needs of the economy.
