Question

# Reserve Bank of India calculates four components of money supply, M1,M2,M2,M4. Which one of the following statements is not correct?

A
M1= currency with public + demand deposits with banks
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B
M2=M1+ post office savings deposit
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C
M3=M1+M2
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D
M4=M3+ total post office deposits
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Solution

## The correct option is A M3=M1+M2Since April 1977, the RBI has been publishing data on four measures of the money supply which are discussed as under:1. M1: The first measure of money supply, M1 consists of:(a) Currency with the public which includes notes and coins of all denominators.(b) demand deposits with commercial and cooperative banks, excluding inter-bank deposits and(c) other deposits with RBI.2. M2: The second measure of money supply is M2 which consists of M1, plus post-office savings bank deposits.3. M3: The third measure of money supply in India is M3 which consists of M1 plus time deposits with commercial banks and cooperative banks, excluding inter-bank time deposits. The RBI calls M3 as broad money.4. M4: The fourth measure of money supply is M4 which consists of M3 plus total post office deposits comprising time deposits and demand deposits as well.

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