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Question
Explain money supply components.
Solution
Money supply consists of various components as follows:
Currency, demand and time deposits in commercial banks and other types of deposits are the total amount of money in an economy. Definition of supply of money varies depending on the components which are included and excluded.
Money supply = Currency with the public + Demand deposits with commercial banks +Deposits kept by commercial banks with the Reserve Bank
Or
M1 = C + DD + OD
Currency with the public includes notes and coins issued by the government authority of India on the basis of the minimum reserve system.
Demand deposits with commercial banks are current account deposits with banks or other financial institutions which are payable on the demand by cheques. Banks do not provide interest payments on deposits.
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