Which of the following components is not included in M1 measure of the money supply?
Answer & explanation
Correct answer: option 3
In India, there are 4 measures of money supply i.e. M1, M2, M3, and M4:
- M1 -> C + DD + OD (It is the narrow money) where C is the currency held by the public. DD is the net demand deposits of the bank. OD are other deposits with RBI.
- M2 -> M1 + Saving deposits with post offices savings bank
- M3 -> M1 + Net time deposits with commercial banks
- M4 -> M3 + Total time deposits with the post offices
Inter-bank deposits do not count as part of the money supply because they are not used in the economy's currency circulation.