The correct answer is option 'A', which is M1.

Explanation:

M1 is considered the narrowest concept of money supply because it includes only the most liquid forms of money that are readily available for transactions. It consists of currency in circulation (notes and coins) and demand deposits (checking accounts) held by the public.

M1 includes the following components:

1. Currency in circulation: This refers to the physical notes and coins in the hands of the public. These are the most tangible form of money and can be used directly for transactions.

2. Demand deposits: These are funds held in checking accounts that are available for immediate withdrawal by the account holders. Demand deposits are highly liquid and can be easily used for day-to-day transactions.

Why M1 is considered a narrow concept of money supply?

M1 is considered a narrow concept of money supply because it only includes the most liquid forms of money. It does not include other components such as time deposits (fixed deposits), savings deposits, and money market mutual funds. These forms of money are less liquid and may not be readily available for transactions.

Other measures of money supply:

- M2: This is a broader concept of money supply than M1. It includes all components of M1 plus savings deposits, time deposits, and money market mutual funds held by individuals and non-financial corporations.

- M3: This is an even broader concept of money supply than M2. It includes all components of M2 plus large time deposits, institutional money market mutual fund balances, and repurchase agreements.

- M4: This is the broadest concept of money supply. It includes all components of M3 plus deposits of financial institutions, such as banks and credit unions.

In summary, M1 is considered the narrowest concept of money supply because it includes only the most liquid forms of money, namely currency in circulation and demand deposits. The other measures of money supply, such as M2, M3, and M4, include additional components that are less liquid and may not be readily available for transactions.