Which of the following is most commonly used measures of money supply, also known as aggregate monetary resources?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → M3
The RBI measures money supply in four ways, M1 to M4. M1 and M2 are narrow money; adding the net time deposits of commercial banks to M1 gives M3, which with M4 is broad money. M3 is the most commonly used measure of money supply and is also known as aggregate monetary resources.
Why the other options are incorrect
Option (1) M1 — Incorrect. M1 is currency held by the public plus demand deposits. It is narrow money, the most liquid measure, and leaves out time deposits.
Option (2) M2 — Incorrect. M2 adds only the savings deposits with post office savings banks to M1, so it too is narrow money.
Option (4) M4 — Incorrect. M4 adds all post office deposits to M3. It is the broadest and least liquid measure, but not the one most commonly used.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 13-05 S2 | 15-05 S1 | – | – | – |
NCERT (2025-26): “Legal Definitions: Narrow and Broad Money … M1 and M2 are known as narrow money. M3 and M4 are known as broad money. These measures are in decreasing order of liquidity. M1 is most liquid and easiest for transactions whereas M4 is least liquid of all. M3 is the most commonly used measure of money supply. It is also known as aggregate monetary resources…” |