There are four alternative measures of money supply $M_1, M_2, M_3 $ and $M_4$. Arrange the following measures in the order of $M_1, M_2, M_3,$ and $M_4$.

A. $M_1 $ + Net time deposits of commercial banks + Total deposits with Post Office Saving Banks (Excluding National Saving Certificates)

B. $CU+DD$

C. $M_1$ - Net deposits

D. $M_1$+ Saving deposits with post office saving banks

E. $M_1$ + Net time deposits of commercial banks

Choose the correct answer from the option given below.

B, D, E, A

The correct answer is option (1) : B, D, E, A

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. $M_1, M_2, M_3$ and $M_4$. They are defined as follows

$M_1= CU+DD$

$M_2=M_1$ + Savings deposits with Post Office savings banks

$M_3=M_1$ + Net Time deposits of commercial banks

$M_4=M_3$ + Total deposits with post Office savings organisations (excluding National Savings Certificates)

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. $M_1, M_2$  are known as narrow money. $M_3, M_4$ are known as broad money. These measures are in decreasing order of liquidity. $M_1$ is most liquid and easiest for transactions whereas $M_4$ is least liquid of all. $M_3$ is the most commonly used measure of money supply. It is also known as aggregate monetary resources.