Given below are two statements:
Statement I: In M1 = CU + DD, the word ‘net’ in net demand deposits implies that only deposits of the public held by the banks are included in money supply.
Statement II: The deposits which a commercial bank holds in other commercial banks are part of M1.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
Statement I: In M1 = CU + DD, the word ‘net’ in net demand deposits implies that only deposits of the public held by the banks are included in money supply. — True. Money supply counts money held by the public. So only the public’s deposits are counted.
Statement II: The deposits which a commercial bank holds in other commercial banks are part of M1. — False. These are interbank deposits. They are not held by the public, so they are not part of money supply.
NCERT (2026-27): “Legal Definitions: Narrow and Broad Money … |