Question -
Answer -
The alternative definitions of money supply in India can be the four measures of money supply. They are explained as under:
Measures of M1 include:
1. Currency notes and coins with the public (excluding cash in hand of all commercial banks) [C]
2. Demand deposits of all commercial and co-operative banks excluding inter-bank deposits. (DD),
Where demand deposits are those deposits which can be withdrawn by the depositor at any time by means of cheque. No interest is paid on such deposits.
3. Other deposits with RBI [O.D]
M1 = C + DD + OD Where, Other deposits are the deposits held by the RBI of all economic units except the government and banks. OD includes demand deposits of semi-government public financial institutions (like IDBI, IFCI, etc.), foreign central banks and governments, the International Monetaiy Fund, the World Bank, etc.
Measures of M2
- M1[C + DD + OD]
- Post office saving deposits
Measures of M3
- M1
- Time deposits of all commercial and co-operative banks.
Where, Time deposits are the deposits that cannot be withdrawn before the expiry of the stipulated time for which deposits are made. Fixed deposit is an example of time deposit.
Measures of M4
- M3
- Total deposits with the post office saving organization (excluding national savings certificates).