In an economy (figures in Rs crore): currency held by the public = 400; net demand deposits held by commercial banks = 600; net time deposits of commercial banks = 900; total deposits with Post Office savings organisations = 400, which include savings deposits of 100 and National Savings Certificates of 100. What are M3 and M4?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → M3 = Rs 1,900 crore and M4 = Rs 2,200 crore
Given (Rs crore):
Currency held by the public, CU = 400
Net demand deposits, DD = 600
Net time deposits of commercial banks = 900
Total deposits with Post Office savings organisations = 400, of which National Savings Certificates (NSC) = 100
M3 is built on M1, not on M2. M4 adds Post Office deposits excluding NSC.
M1 = CU + DD = 400 + 600 = 1,000
M3 = M1 + net time deposits = 1,000 + 900 = Rs 1,900 crore
Post Office deposits without NSC = 400 − 100 = 300
M4 = M3 + 300 = Rs 2,200 crore
Adding the Post Office savings deposits of 100 to M3 gives 2,000, which is M3 built wrongly on M2.
Keeping NSC in M4 gives 2,300.
NCERT (2026-27): “Legal Definitions: Narrow and Broad Money Money supply, like money demand, is a stock variable. The total stock of money in circulation among the public at a particular point of time is called money supply. RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4. They are defined as follows |