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

The correct answer is Option (4) → (D), (B), (A), (C)

An asset’s liquidity is the ease with which it can be used for transactions: currency and demand deposits can be spent at once, while savings and time deposits take longer to turn into spending. Each measure of money supply adds a less liquid asset to the one before, so M₁ is the most liquid and M₄ the least.

(D) Currency + Demand Deposit — M₁: currency held by the public plus net demand deposits held by commercial banks. Both can be spent at once, so this is the most liquid measure; M₁ and M₂ are called narrow money.

(B) M1 + Savings deposits with Post Office savings banks — M₂: M₁ plus savings deposits with post office savings banks. These deposits are not as freely usable for payments as currency and demand deposits.

(A) M1 + Net time deposits of commercial banks — M₃: M₁ plus net time deposits of commercial banks. Time deposits are held for a fixed period, so they are less liquid again; M₃ is called broad money.

(C) M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates) — M₄: M₃ plus total deposits with post office savings organisations (excluding National Savings Certificates). It includes every deposit of the earlier measures and more, so it is the least liquid.

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

* A similar question.