_____ are known as narrow money.

Question

Question

This question was previously asked in

SSC CGL 2022 Tier-I Official Paper (Held On : 13 Dec 2022 Shift 4)

Answer 1

The correct answer is M1 and M2

Key Points:Money -

In a modern economy, money consists mainly of currency notes and coins issued by the monetary authority of the country.
In India currency notes are issued by the Reserve Bank of India (RBI), which is the monetary authority in India.
However, coins are issued by the Government of India.
Apart from currency notes and coins, the balance in savings, or current account deposits, held by the public in commercial banks is also considered money since cheques drawn on these accounts are used to settle transactions.
Such deposits are called demand deposits as they are payable by the bank on demand from the account holder.
Other deposits, e.g. fixed deposits, have a fixed period to maturity and are referred to as time deposits.

Money supply -

The total stock of money in circulation among the public at a particular point in time is called money supply.
RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3, and M4.
They are defined as follows -
- M1 = Currency + Demand deposits with the banking system.
- 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 organizations (excluding National Savings Certificates)
M1 and M2 are narrow money.
M3 and M4 are known as broad money.
These gradations are in decreasing order of liquidity. M1 is the most liquid and easiest for transactions whereas M4 is the least liquid of all. M3 is the most commonly used measure of the money supply.
It is also known as aggregate monetary resources.