Question

Which of the following are the definitions of money supply in India?

Options

• M₁ = C + DD + OD

• M₂ = M₁ + Savings of the people with Post offices

• M₃ = M₁ + Net time deposits with commercial banks

• All of the above

Answer 1

All of the above

Explanation:

M₁, M₂, M₃, and M₄ are the several RBI-approved definitions of money supply in India. In order of liquidity, M₁, M₂, M₃, and M₄ are listed first. M1 has the most liquidity, whilst M4 has the least.

So,

M₁ = C + DD + OD

Where,

c = Currency held by public

DD = Net demand deposits of the hank

OD = other deposits held by RBI

M₂ = M₁ + Savings of the people with Post offices (M₂ includes the components of M1 as well as the savings of people with Post offices)

M₃ = M₁ + Net time deposits with commercial banks (M₃ is the most widely used monetary supply indicator. It comprises M₁ components as well as commercial banks' net time deposits.)

M₄ = M₃ + Deposits made at post offices in total (excluding National Saving certificate)