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Consider the following statements with reference to the measures of money supply in India:
1. Among all the measures of money supply, M4 is the most liquid.
2. M1 is the most commonly used measure of money supply and is known as aggregate monetary resources.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements with reference to the measures of mo...
- Money supply, like money demand, is a stock variable. The total stock of money in circulation among the public at a particular point of time is called the money supply.
- RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4. They are defined as followsM1 = CU + DDM2 = M1 + Savings deposits with Post Office savings banks M3 = M1 + Net time deposits of commercial banksM4 = M3 + Total deposits with Post Office savings organizations (excluding National Savings Certificates) where CU is currency (notes plus coins) held by the public and DD is net demand deposits held by commercial banks.
- The word ‘net’ implies that only deposits of the public held by the banks are to be included in the money supply. The interbank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of the money supply. 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 the most liquid and easiest for transactions whereas M4 is the least liquid of all. M3 is the most commonly used measure of money supply. It is also known as aggregate monetary resources. Hence both statements 1 and 2 are not correct.
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Consider the following statements with reference to the measures of mo...
Explanation:
Statement 1:
- M4 is not the most liquid measure of money supply in India. In fact, M1 is the most liquid measure as it includes currency notes and coins in circulation, demand deposits, and other liquid assets.
- M4, on the other hand, includes all components of M3 plus time deposits with banks.
Statement 2:
- M1 is indeed the most commonly used measure of money supply in India.
- It is also known as aggregate monetary resources as it encompasses the most liquid assets that can be quickly converted into cash.
Conclusion:
- The correct answer is option 'D' as neither of the statements is entirely correct.
- While M1 is the most liquid measure and commonly used, M4 is not the most liquid measure of money supply in India.
Statement 1:
- M4 is not the most liquid measure of money supply in India. In fact, M1 is the most liquid measure as it includes currency notes and coins in circulation, demand deposits, and other liquid assets.
- M4, on the other hand, includes all components of M3 plus time deposits with banks.
Statement 2:
- M1 is indeed the most commonly used measure of money supply in India.
- It is also known as aggregate monetary resources as it encompasses the most liquid assets that can be quickly converted into cash.
Conclusion:
- The correct answer is option 'D' as neither of the statements is entirely correct.
- While M1 is the most liquid measure and commonly used, M4 is not the most liquid measure of money supply in India.
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Consider the following statements with reference to the measures of money supply in India:1. Among all the measures of money supply, M4 is the most liquid.2. M1 is the most commonly used measure of money supply and is known as aggregate monetary resources.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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