Question
Download Solution PDF_________ is the most commonly used measure of money supply.
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is M3
Key Points
- M3 is the most commonly used measure of money supply.
- In India, the Reserve Bank of India (RBI) uses M3 as the principal measure of money supply.
- M3 includes M1 (currency with the public and demand deposits with banks) as well as time deposits with banks.
- It is often referred to as broad money and provides a comprehensive measure of the total money supply in the economy.
- M3 reflects the overall liquidity in the banking system and is used for monetary policy analysis and formulation.
Additional Information
- M1 includes the most liquid forms of money, such as currency and demand deposits.
- M2 includes M1 plus savings deposits, time deposits, and non-institutional money market funds.
- M4 includes M3 plus all deposits with post office savings banks (excluding National Savings Certificates).
- Monitoring the money supply is crucial for managing inflation, interest rates, and overall economic growth.
- The RBI regularly publishes data on different measures of the money supply to provide insights into the liquidity conditions in the economy.
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