The measures of money supply, namely, M1, M2, M3 and M4, in this order, indicate: 

The correct answer is decreasing the order of liquidity.

Key Points

• The money supply measures are used by central banks to monitor and control the amount of money in circulation in the economy.
•  M1 includes the most liquid forms of money such as cash, demand deposits, and traveler's checks. It is considered a narrow measure of money supply.
•  M2 includes M1 plus less liquid forms of money such as savings deposits, time deposits, and money market funds. It is considered a broader measure of money supply than M1.
• M3 includes M2 plus large time deposits, institutional money market funds, and other forms of less liquid assets. It is considered a broad measure of money supply.
•  M4 includes M3 plus all other forms of deposits such as certificates of deposit and commercial paper. It is considered the broadest measure of money supply.

Additional Information

Important Points

• The money supply is defined as currency in circulation plus deposits in commercial banks in the most basic sense.
• The total stock of money circulating in an economy is referred to as the money supply.
• In short, there are two types of money:
  • Central bank money (MO).
  • Commercial bank money (M1 and M3).
• Central bank money is designated as MO in money supply data, whereas commercial bank money is separated into M1 and M3 components. Post-office deposits are also included in the M2 and M4 components.