Q. RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4. Arrange them in decreasing order of their liquidity:

M1> M2> M3> M4

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M3> M2> M1> M4

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M4> M3> M2> M1

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M2> M1> M4> M3

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Solution

The correct option is A
M1> M2> M3> M4
Explanation:

M1 is the most liquid measure of money supply, whereas m4 is the least liquid among all. Liquidity refers to the ease with which an asset, or security, can be converted into ready cash that is readily available for investment and spending.

M1 = CU + DD (CU= currency, DD= Demand Deposits)
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)

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