EconomicsMacro Economics: Money and Banking

Currency notes, coins and demand deposits held by the public in comme…

Currency notes, coins and demand deposits held by the public in commercial banks are together called:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Narrow money

Currency with the public plus demand deposits make up M1. M1 and M2 are called narrow money. Adding time deposits gives broad money.

Option (1) Narrow money — Correct. Notes, coins and demand deposits of the public.

Option (2) High powered money — Incorrect. This is money issued by the RBI, mainly currency, held by the public and banks.

Option (3) Aggregate monetary resources — Incorrect. This is M3, which also includes net time deposits.

Option (4) Broad money — Incorrect. It adds time deposits to narrow money.

NCERT (2026-27): “Legal Definitions: Narrow and Broad Money …
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. M1 and M2 are known as narrow money. M3 and M4 are known as broad money. These measures are in decreasing order of liquidity.”

Glossary: “Narrow money - Currency notes, coins and demand deposits held by the public in commercial banks.”