Posted in Finance, Accounting and Economics Terms, Total Reads: 304
Definition: Active Money
Active money is defined as the total value of paper currency and coins present in circulation in the public domain. It is the measure of liquid money present in the market. The amount of active money present in the market varies with respect to the time and season. The fluctuations occur seasonally, monthly, weekly and daily.
Example: For weekends, people tend to withdraw more money on Fridays so as to enjoy the weekend and hence there is more active money/cash on Monday than on Friday. The demand for cash reduces post festival season or vacation time. During Diwali, there was high active money as people were shopping and buying gifts and dresses for their loved ones.
The amount of active money in the market also helps in determining the overall health of the economy. If there is consistently more amount of active money in the market, it means that the interest rates are low and people prefer to spend money than to keep it with banks. This means that the economy is deflating.