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The Reserve Bank of India publishes figures for how many measures of money supply?

The Reserve Bank of India publishes figures for how many measures of money supply? Correct Answer Four

The correct option is Four.

Important Points

  • Supply of Money In a modern economy, money comprises cash and bank deposits.
  • Depending on what types of bank deposits are being included, there are many measures of money.
  • These are created by a system comprising two types of institutions: the central bank of the economy and the commercial banking system.
  • Money supply, like money demand, is a stock variable.
  • The total stock of money in circulation among the public at a particular point in time is called money supply.
  • RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3, and M4.
  • They are defined as follows:
    • M1 = CU + DD
    • M2 = M1 + Savings deposits with Post Office savings banks
    • M3 = M1 + Net time deposits of commercial banks
    • M4 = M3 + Total deposits with Post Office savings organizations (excluding National Savings Certificates)
  • Where CU is currency (notes plus coins) held by the public and DD is net demand deposits held by commercial banks. The word ‘net’ implies that only deposits of the public held by the banks are to be included in the money supply.
  • The interbank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of the money supply.
  • M1 and M2 are known as narrow money.
  • M3 and M4 are known as broad money. These measures are in decreasing the order of liquidity.
  • M1 is the most liquid and easiest for transactions whereas M4 is the least liquid of all. M3 is the most commonly used measure of the money supply. It is also known as aggregate monetary resources.

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