What are the measures of money supply?

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Solution

The RBI uses four measures of money supply denoted as $M_{1}, M_{2}, M_{3}, M_{4} .$

$M_{1}$ = Currency notes and coins in circulation with public (but not those held by banks) + Net demand deposits with the commercial banks + Other deposits

$M_{2}$ = $M_{1}$ + Deposits with post-office savings banks

$M_{3}$ = $M_{1}$ + Fixed deposits with banks

$M_{4}$ = $M_{3}$ + All post-office savings bank deposits

In India, $M_{3}$ is the most commonly used measure of money supply.

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