In the present context, total money stock in India refers toa)M1b)M2c)M3d)M4Correct answer is option 'C'. Can you explain this answer?

Question

Answer

M3. The third measure of money supply in India is M3, which consists of M1, plus time deposits with commercial and cooperative banks, excluding interbank time deposits. The RBI calls M3 as broad money.

Answer

Explanation:

Total money stock in India refers to M3 in the present context. Here is a detailed explanation:

Definition of M3:

M3 is a measure of the money supply that includes M1 (currency in circulation and demand deposits) along with time deposits, savings deposits, and other near money substitutes. It is considered a broad measure of the money supply as it includes both liquid and less liquid assets.

Components of M3:

- Currency with the public
- Demand deposits with banks
- Time deposits with banks
- Savings deposits with banks
- Certificates of deposit issued by banks
- Other deposits with the Reserve Bank of India

Importance of M3:

M3 is an important indicator for policymakers and economists to understand the total money supply in the economy. It helps in analyzing the liquidity and financial conditions of the country, which in turn influences monetary policy decisions.

Comparison with Other Money Supply Measures:

- M1: Includes only the most liquid forms of money such as currency and demand deposits.
- M2: Includes M1 along with savings deposits and other time deposits.
- M4: Includes M3 along with all other deposits with the Reserve Bank of India.
In conclusion, total money stock in India is represented by M3, which provides a comprehensive view of the money supply in the economy.

Answer

Introduction:
In the present context, the total money stock in India refers to a specific measure of the money supply. There are different measures of money supply in an economy, and the question is asking which one is considered as the total money stock in India.
Explanation:
The various measures of the money supply in India are denoted as M1, M2, M3, and M4. Each measure includes different components of money, and they represent different levels of liquidity in the economy. Let's explore each measure to determine which one represents the total money stock in India:
- M1: M1 is the narrowest measure of money supply and includes the most liquid forms of money. It consists of currency in circulation, demand deposits, and other deposits with the Reserve Bank of India (RBI). However, M1 does not include time deposits or savings deposits.
- M2: M2 is a broader measure of money supply and includes all components of M1 along with time deposits, savings deposits, and small-denomination time deposits. It represents a wider range of money in circulation compared to M1.
- M3: M3 is an even broader measure of money supply and includes all components of M2 along with large-denomination time deposits. It represents an even wider range of money in circulation compared to M2.
- M4: M4 is the broadest measure of money supply and includes all components of M3 along with repurchase agreements, commercial paper, and other forms of institutional money market instruments.
Conclusion:
Based on the explanation above, the total money stock in India, in the present context, refers to M3 (Option C). M3 includes currency in circulation, demand deposits, time deposits, savings deposits, and large-denomination time deposits, representing the widest range of money in circulation in the Indian economy.

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