Arrange the following alternative measures of money supply in decreas…

The correct answer is Option (2) → A, C, B, D

An asset’s liquidity is the ease with which it can be used for transactions: currency and demand deposits can be spent at once, while savings and time deposits take longer to turn into spending. Each measure of money supply adds a less liquid asset to the one before, so M₁ is the most liquid and M₄ the least.

A. CU + DD — this is M₁: currency held by the public plus net demand deposits held by commercial banks. Both can be spent at once, so this is the most liquid measure; M₁ and M₂ are called narrow money.

C. CU + DD + Savings deposits with Post Office savings banks — this is M₂, M₁ plus savings deposits with post office savings banks. These deposits are not as freely usable for payments as currency and demand deposits.

B. CU + DD + Net time deposits of commercial banks — this is M₃, M₁ plus net time deposits of commercial banks. Time deposits are held for a fixed period, so they are less liquid again; M₃ is called broad money.

D. CU +DD + Net time deposits of commercial banks +Total deposits with Post Office savings organizations (excluding NSC) — this is M₄, M₃ plus total deposits with post office savings organisations (excluding National Savings Certificates). It includes every deposit of the earlier measures and more, so it is the least liquid.

Note: A same/similar question was asked in CUET (UG) in the papers below.

* A similar question.