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.