Introductory Macroeconomics

Book: Introductory Macroeconomics

Chapter: 3. Money And Banking

Subject: Social Science - Class 12th

Q. No. 7 of Exercises

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What are the alternative definitions of money supply in India?

The supply of money means total volume of money held by the public (individuals and firms) at any particular point of time. It is a stock concept as it is concerned with a particular point of time.

Alternative measures of money supply

In India Reserve Bank of India uses four alternative measures of money supply called M1 M2 M3 and M4. Among these M1 is the most commonly used measure of money supply because its components are regarded most liquid assets.

All of these are discussed below

a) M1 = C + DD + OD.

C denotes currency held by public

DD denotes demand deposits in banks and

OD stands for other deposits in RBI

b) M2 = M1 + saving deposits with post office savings banks

c) M3 = M1 + net time deposits of banks

d) M4 = M3 + total deposits with post office saving organisation excluding NSC

In practice M1 is widely used as measure of money supply and is also called aggregate monetary resource of society.


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