Different Measures of Money Supply - M1,M2,M3,M4

What is Money Supply?

It is total stock of Money in Circulation with public at a particular point of time.

Is Money Supply a Stock Variable or Flow Variable?

Money Supply is a stock variable

It is because it is measured at a particular point of time

Ex - RBI Publishes figures for Money Supply as on 31 Mar 2021 which means total money in circulation among public as on 31 Mar 2021

What are Different types of Money Supply

Figures Published by RBI for Money  Supply

RBI publishes 4 types of figures in case of Money Supply

M1,M2,M3,M4

lets learn about it one by one

Write short note on M1,M2,M3 and M4

M1

M1 is total of currency notes and coins (CU)+ net demand deposits issued (DD)

M1 = CU+DD

Note

Net demand Deposits means Term Deposits of public and not term deposit of one bank with other bank

M2

in M2, We include savings deposits with Post office savings banks also with M1

M2 = M1 + Post office savings banks

M3

in M3, We include Net time deposits of commercial banks also with M1

M3 = M1 + Net time deposits of commercial banks

M4

In M4, we include M3 + total deposits with Post office savings organizations

(however, National savings Certificate is not included)

M4 = M3 + Total Deposits of Post Office

Which one of above is most liquid

M1 is most liquid, M2 little less, M3 even more less and M4 is least liquid

Which is most commonly used method of legal supply

M3

It is also called aggregate monetary resources

What is broad money and narrow money?

• Narrow money

Money which is most liquid is called Narrow money

M1 and M2 are called Narrow money

• Broad Money

It is amt of money in economy which includes both highly liquid and less liquid forms

M3 and M4 are called Broad money

Lets understand Difference between Broad Money and Narrow Money

NCERT Questions

Question 4

What are the alternative definitions of money supply in India?

Other Books

Question 1

In the following questions, select the correct answers:

What items are not included in M1 measure of supply?

1. Currency and coins with public
2. Inter-bank deposits
3. Net Deposits with Banks
4. Net demand deposits with banks

Question 3

Money Supply refers to:

1. Total volume of money held by public at a particular point of time
2. Total volume of money held by public over a period of time
3. Total volume of money held by the government
4. Both A and B

Question 4

Money Supply is a ____ concept.

1. Flow
2. Stock
3. Both A and B
4. Neither A nor B

Question 5

Who regulates Money Supply?

1. Government
2. Planning Commission
3. Commercial Banks
4. RBI

Question 6

Which of the following is false?

1. Money Supply is a stock concept 
2. High Powered money include demand deposits of commercial banks, besides currency with the public
3. M1 includes gross demand deposits instead of net demand deposits
4. None of these

Ans

(c) M1 includes gross demand deposits instead of net demand deposits

Explanation

M1 does not include gross demand deposits instead it includes net demand deposits

M1 is total of currency notes and coins (CU)+ net demand deposits issued (DD)

M1 = CU+DD

Oswaal Questions

Question 2

______ is the main source of money supply in an economy.

1. Central Bank
2. Commercial Banks
3. Both (A) and (B)
4. Government