Question

In money supply, M2 includes both M1 and savings deposits with ________.

• A. commercial banks
• B. savings banks
• C. rural banks
• D. term deposits

Answer 1

The correct option is B savings banks

M1 is the country's basic money supply. It encompasses all the currency notes, coins, and net demand deposits held in commercial banks.

M2 encompasses M1 and the savings deposits with the post office savings banks. This also represents the money that is readily available in the economy.

However, the difference between M1 and M2 is the post office deposits. They have rigid rules of withdrawal. The money cannot be withdrawn immediately from post office deposits.