Given below are two statements:
Assertion (A): In India’s data on money supply, M3 is larger than M1 in every year.
Reason (R): M3 is equal to M1 plus the net time deposits of commercial banks.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): In India’s data on money supply, M3 is larger than M1 in every year. — True. In every row, the M3 figure is several times the M1 figure (for example, 2023-24: 60,91,700 and 2,49,39,860 crore).
Reason (R): M3 is equal to M1 plus the net time deposits of commercial banks. — True. This is how RBI defines M3.
Why R explains A?
M3 holds all of M1 and adds the net time deposits of banks on top. Time deposits are always positive, so M3 must be larger than M1 every year. The table’s own note puts the gap down to these time deposits.
NCERT (2026-27): “Legal Definitions: Narrow and Broad Money … M1 = CU + DD Table 3.4: Changes in M1 and M3 Over Time (in crore) (2023-24): “… The difference in values between the two columns is attributable to the time deposits held by commercial banks.” |