Three of the following are part of M1 (narrow money). Which one is the odd one out?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Net time deposits of commercial banks
M1 = CU + DD: currency held by the public plus net demand deposits. Time deposits are added only in M3.
Option (1) Net demand deposits held by commercial banks — Part of M1. This is DD.
Option (2) Currency notes and coins held by the public — Part of M1. This is CU.
Option (3) Net time deposits of commercial banks — Not part of M1 (odd one out). Fixed deposits are time deposits. M3 = M1 + net time deposits.
Option (4) Balances in savings and current accounts of the public — Part of M1. These balances are demand deposits.
NCERT (2026-27): “The Supply of Money : Various Measures … Apart from currency notes and coins, the balance in savings, or current account deposits, held by the public in commercial banks is also considered money since cheques drawn on these accounts are used to settle transactions. Such deposits are called demand deposits as they are payable by the bank on demand from the account-holder. Other deposits, e.g. fixed deposits, have a fixed period to maturity and are referred to as time deposits. …” “Legal Definitions: Narrow and Broad Money … M1 = CU + DD |