There are four alternative measures of money supply.
M1 (M1 Money) = CU + DD
M2 = M1 + Savings deposits with Post Office saving bank
CU= Currency (notes plus coins)
DD = Net demand deposits
M1 and M2 are known as __________ Money.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Narrow
Money supply is measured in four ways, M1 to M4, in decreasing order of liquidity. M1 and M2 are called narrow money. M3 and M4 are called broad money.
M1, made up of currency and demand deposits, is the most liquid and the easiest to use for transactions.
NCERT (2026-27): “Legal Definitions: Narrow and Broad Money Money supply, like money demand, is a stock variable. The total stock of money in circulation among the public at a particular point of 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 organisations (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. … M1 and M2 are known as narrow money. M3 and M4 are known as broad money. These measures are in decreasing order of liquidity. M1 is most liquid and easiest for transactions whereas M4 is least liquid of all.…” |