Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R).
Assertion (A): Fixed deposits of the public with commercial banks are a part of M1.
Reason (R): Fixed deposits have a fixed period to maturity and are called time deposits.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) is false but (R) is true.
M1 has only currency and demand deposits. Fixed deposits are time deposits, which enter M3, so A is false.
Assertion (A): Fixed deposits of the public with commercial banks are a part of M1. — False. M1 = CU + DD: currency held by the public plus net demand deposits. Net time deposits are added only in M3.
Reason (R): Fixed deposits have a fixed period to maturity and are called time deposits. — True. Unlike savings and current accounts, they are not payable on demand.
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 … RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4. They are defined as follows |