Out of the four concepts of money supply used in India, M1, M2, M3, and M4, the post office savings are included in :
1) M1 only
2) M3 and M4 only
3) M4 only
4) M2 and M4 only
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Out of the four concepts of money supply used in India, M1, M2, M3, and M4, the post office savings are included in :
1) M1 only
2) M3 and M4 only
3) M4 only
4) M2 and M4 only
The correct answer is M2 and M4 only .
The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets.
RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4.
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 organisations (excluding National Savings Certificates)
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 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 gradations are in decreasing 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.