Question

Consider the following statement regarding the measures of money supply in India:

1. M₁ refers to currency with the public + demand deposits with the banking system + other deposits with the RBI.

2. M₄ refers to M₃ + All deposits with post office.

Choose the correct answer from the statements given above

1. Only 1
2. Only 2
3. 1 & 2
4. None of the above

Answer 1

Correct Answer - Option 3 : 1 & 2

The correct answer is 1 & 2.

• Measures of Monetary and Liquidity Aggregates:
  • M1 = Currency with public + Demand deposits with the Banking system (current account, saving account) + Other deposits with RBI
  • M2 = M1 + Savings deposits of post office savings banks
  • Broad Money (M3)
  • M3 = M1 + Time deposits with the banking system
  • M4 = M3 + All deposits with post office savings banks (excluding National Savings Certificates).

• The measures of money supply in India are classified into four categories M1, M2, M3, and M4 along with M0.
• This classification was introduced in April 1977 by the Reserve Bank of India.
• Reserve Money (M0): It is also known as High-Powered Money, monetary base, base money, etc.
  • M0 = Currency in Circulation + Bankers’ Deposits with RBI + Other deposits with RBI.
• It is the monetary base of the economy.