EconomicsMacro Economics: Money and Banking

In an economy (figures in Rs crore): currency held by the public = 30…

In an economy (figures in Rs crore): currency held by the public = 300; demand deposits of the public with commercial banks = 500; deposits which commercial banks hold in other commercial banks = 100; time deposits of the public with commercial banks = 700. What is M1?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Rs 800 crore

Given (Rs crore):

Currency held by the public, CU = 300

Demand deposits of the public, DD = 500

Interbank deposits = 100

Time deposits = 700

M1 = CU + net demand deposits. ‘Net’ means only the public’s deposits count, so interbank deposits are left out. Time deposits belong to M3.

M1 = 300 + 500 = Rs 800 crore

Option (1) Rs 1,500 crore — adds the time deposits too, which gives M3.

Option (2) Rs 900 crore — adds the interbank deposits.

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. 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 money supply. …”