Question

Q. Consider the following statements with respect to’ money supply’ in the economy:

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

Answer 1

The correct option is A

1 only

Explanation:

Statement 1 is correct: Total amount of money circulating at a particular time in the form of currency, printed notes, in deposits of the banks and other liquid assets.

Statement 2 is incorrect: In the banking parlance, M1 is called Narrow money and M3 is called Broad money. M1 has the highest liquidity and banks cannot lend money from this pool.