Q. M3, which is also known as "Broad Money", consists of which of the following?

1. Currency notes and coins held by public.
2. Net demand deposit held by public.
3. Savings deposits with Post Office Savings Banks.
4. Net time deposits of Commercial Banks.

Select the correct answer from the codes given below:
Answer: Only 1, 2, and 4
Notes: The RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4. They are defined as follows:

• M1 = CU + DD;
• M2 = M1 + Savings deposits with Post Office savings banks;
• M3 = M1 + Net time deposits of commercial banks;
• M4 = M3 + Total deposits with Post Office savings organisations (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. M1 and M2 are known as narrow money. M3 and M4 are known as broad money. These gradations 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 resource.

This question is part of UPSC Daily 20 MCQ Series Course on GKToday Android app.