Arrange the following measures of money supply in ascending order of…

The correct answer is Option (2) → (D), (B), (C), (A)

Money is liquid when it can be used for payments easily and at once. Currency and demand deposits can be spent straight away, so they are the most liquid; savings and time deposits take longer to turn into spending. The RBI’s four measures of money supply add such less liquid items one after another, so M1 is the most liquid and M4 the least, and in ascending order of liquidity the list starts with M4 and ends with M1.

(D) M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates). — this is M4, the least liquid, because it adds all the post office deposits to M3.

(B) M1 + Net time deposits of commercial banks. — this is M3. Time deposits are held for a fixed period and cannot be used for payments at once, so M3 is less liquid than M2 and M1.

(C) M1 + Savings deposits with Post Office savings banks. — this is M2, which adds only the post office savings deposits to M1.

(A) Currency + Demand Deposits. — this is M1 (CU + DD), the money the public can spend at once, and so the most liquid.

Note: A same/similar question was asked in CUET (UG) in the papers below.

* A similar question.