How is Broad Money defined in the context of a financial system?

Broad Money is a measure of the total money supply within an economy, which encompasses various forms of money that are available for spending and investment. In the context of the choices provided, the definition that encapsulates the most comprehensive understanding of Broad Money is M3 plus non-bank deposits minus bank holdings.

M3 is one of the most extensive measures of the money supply, including cash, checking deposits, savings deposits, and other types of deposits held by the public. By adding non-bank deposits to M3, this definition accommodates a wider range of liquid assets that individuals and businesses can use in transactions. The explicit exclusion of bank holdings from this formulation ensures that only the money actually in circulation and not held by banks is considered, providing a clearer picture of the funds available for economic activity.

This approach aligns with monetary policy considerations, as Broad Money is an essential indicator for economists and policymakers when assessing liquidity in the financial system and its potential influence on economic growth and inflation. Therefore, this answer provides a complete and accurate representation of Broad Money.