EconomicsMacro Economics: Money and Banking

Given below are two statements:Statement I: M3 and M4 are known as br…

Given below are two statements:

Statement I: M3 and M4 are known as broad money.

Statement II: M3 is the most commonly used measure of money supply and is also known as aggregate monetary resources.

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 Statement I and Statement II are true.

Statement I: M3 and M4 are known as broad money. — True. M1 and M2 are narrow money; M3 and M4 are broad money.

Statement II: M3 is the most commonly used measure of money supply and is also known as aggregate monetary resources. — True. M3, which is M1 plus net time deposits, is the most used measure. Its other name is aggregate monetary resources.

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. M1 is most liquid and easiest for transactions whereas M4 is least liquid of all. M3 is the most commonly used measure of money supply. …”

Glossary: “Aggregate monetary resources - Broad money without time deposits of post office savings organisation (M3).”