Which of the following will not come under narrow money?a)Currency in circulationb)Demand depositc)Time Depositd)None of theseCorrect answer is 'C'. Can you explain this answer?

Question

Answer

Narrow money is the most liquid part of the money supply because the demand deposits can be withdrawn anytime during the banking hours. Time deposits on the other hand have a fixed maturity period and hence cannot be withdrawn before expiry of this period.

Answer

Time deposits has fixed maturity period...

Answer

Narrow money has less liquidity and time deposits is also less liquid thus ans is 'c'

Answer

Narrow money, also known as M1 money supply, refers to the most liquid forms of money, which can be easily accessed and used for transactions. It includes currency in circulation and demand deposits.

Here is a detailed explanation of each option:

a) Currency in circulation: Currency in circulation refers to the physical notes and coins that are in the hands of the public and are used to make transactions. These are considered part of narrow money because they can be readily used for purchases.

b) Demand deposit: Demand deposits are funds that are deposited in a bank account and can be withdrawn by the account holder on demand. These deposits are typically held in checking accounts and are considered highly liquid. They are included in narrow money because they can be easily accessed and used for transactions.

c) Time deposit: Time deposits, also known as term deposits or certificates of deposit (CDs), are funds that are deposited in a bank account for a fixed period of time. These deposits have a specified maturity date and typically offer higher interest rates than demand deposits. However, they are not considered part of narrow money because they cannot be easily accessed or used for transactions until the maturity date.

d) None of these: This option is incorrect because both currency in circulation and demand deposits are included in narrow money. Therefore, the correct answer is 'C'.

In summary, narrow money includes currency in circulation and demand deposits, while time deposits are not considered part of narrow money.

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