Measures of Money Supply – ద్రవ్య సరఫరా కొలమానాలు

Money Supply – ద్రవ్య సరఫరా అనేది ఒక నిర్దిష్ట సమయంలో economyలో public వద్ద అందుబాటులో ఉన్న monetary assets యొక్క stock. Indiaలో Reserve Bank of India వివిధ monetary aggregatesను compile చేస్తుంది.

Most Important Exam Recall

M1 → Narrow Money

M3 → Broad Money

M0 / Reserve Money → Monetary Base / High-Powered Money

Money Supply – ద్రవ్య సరఫరా అంటే ఏమిటి?

ఒక particular point of timeలో public వద్ద ఉన్న currency మరియు specified bank/post-office deposits వంటి monetary assets మొత్తం Money Supply.

Important:

Money Supply is a Stock Concept, because it is measured at a particular point of time.

Stock vs Flow

Stock	Flow
Measured at a point of time	Measured over a period of time
Money Supply	Income
Wealth	Consumption per year
Capital Stock	Investment per year

Money Supply = Stock

Income = Flow

Who is the “Public”?

Money-supply measurement focuses on monetary liabilities of the money-creating sectors held by the money-using sectors, broadly called the public.

Exam Concept:

Currency held inside banks is not counted as Currency with the Public.

Currency with the Public

Currency with the public is obtained by deducting cash held by banks from total currency in circulation.

Currency with Public = Currency in Circulation − Cash with Banks

Example

Currency in circulation = ₹40 lakh crore
Cash held by banks = ₹2 lakh crore

Currency with Public

= 40 − 2

= ₹38 lakh crore

Demand Deposits

Deposits that can be withdrawn or used for payments on demand are called Demand Deposits.

Examples include:

✓ Current-account deposits
✓ Demand component of eligible bank deposits
✓ Deposits usable for transactions subject to banking rules

Demand Deposits have high liquidity because they can be used for payments with little or no waiting period.

Time Deposits

Deposits placed with banks for a specified period or subject to time-deposit conditions are called Time Deposits.

Example:

Fixed / Term Deposits

Time Deposits are included in M3, but not in traditional M1.

India's Traditional Measures of Money Supply

For competitive examinations, remember the four traditional RBI money-stock measures:

M1 – Narrow Money

↓

M2

↓

M3 – Broad Money

↓

M4

Memory:

M1 → Narrow
M3 → Broad

M1 – Narrow Money

M1 is the most important traditional narrow monetary aggregate.

M1 = Currency with the Public + Demand Deposits with Banking System + Other Deposits with RBI

M1 Components

1. Currency with Public
2. Demand Deposits with Banking System
3. Other Deposits with RBI

M1 = Narrow Money

Other Deposits with RBI

M1లో currency and bank demand depositsతో పాటు RBI వద్ద public-related eligible “Other Deposits” కూడా included ఉంటాయి.

Exam Tip:

M1 formulaలో Other Deposits with RBIను మర్చిపోవద్దు.

M2

M2 = M1 + Savings Deposits with Post Office Savings Banks

Memory:

M2 = M1 + Post Office Savings Deposits

M3 – Broad Money

Indiaలో traditional broad money measureగా M3 అత్యంత ముఖ్యమైనది.

M3 = M1 + Time Deposits with Banking System

Therefore:

M3 = Currency with Public
+ Demand Deposits with Banking System
+ Other Deposits with RBI
+ Time Deposits with Banking System

M3 = Broad Money

High-Probability Exam Point:

M1 → Narrow Money

M3 → Broad Money

M4

M4 = M3 + All Deposits with Post Office Savings Banks

In the RBI's traditional definition, National Savings Certificates are excluded from the relevant total post-office-deposit component.

Memory:

M4 = M3 + Total Post Office Deposits

M1, M2, M3 and M4 – Master Table

Measure	Composition	Key Name
M1	Currency with Public + Demand Deposits with Banks + Other Deposits with RBI	Narrow Money
M2	M1 + Post Office Savings Deposits	Broader than M1
M3	M1 + Time Deposits with Banks	Broad Money
M4	M3 + Total Post Office Deposits	Broad traditional measure

Narrow Money vs Broad Money

Narrow Money – M1	Broad Money – M3
Highly liquid monetary assets	Includes M1 plus bank time deposits
Currency + demand deposits + other RBI deposits	Greater coverage of monetary assets
Strong transactions-money focus	Includes less-liquid time deposits

One-Line Recall:

M3 = M1 + Time Deposits

Reserve Money – M0

Reserve Money is also called:

✓ High-Powered Money
✓ Monetary Base
✓ Reserve Money
✓ M0 in common exam terminology

Reserve Money = Currency in Circulation + Bankers' Deposits with RBI + Other Deposits with RBI

Very Important Distinction:

M1 uses → Currency with the Public

Reserve Money uses → Currency in Circulation

M0 vs M1

Reserve Money / M0	M1
Monetary Base	Narrow Money
Includes bankers' deposits with RBI	Includes demand deposits with banking system
Uses currency in circulation	Uses currency with public
Base for monetary expansion	Transactions-oriented money measure

Why is M0 Called High-Powered Money?

The monetary base supports the banking system's deposit and credit creation process. Therefore, a given amount of reserve money can support a larger amount of broader money.

Reserve Money / Monetary Base

↓

Bank Reserves

↓

Deposit & Credit Creation

↓

Broader Money Supply

Money Multiplier

Money multiplier shows the relationship between a broader money stock and the monetary base.

Money Multiplier = Money Supply / Reserve Money

If M denotes the chosen broad money measure and H denotes high-powered money:

m = M / H

M = m × H

Numerical Example

M3 = ₹300 lakh crore
Reserve Money = ₹60 lakh crore

Money Multiplier

= 300 / 60

= 5

Simple Deposit Multiplier

In a highly simplified banking model with no currency leakage and banks holding only required reserves:

Simple Deposit Multiplier = 1 / Reserve Ratio

Example

Reserve Ratio = 10% = 0.10

Simple Deposit Multiplier

= 1 / 0.10

= 10

Exam Caution:

The simple 1 / reserve ratio formula is a theoretical simplification.

The actual money multiplier is affected by currency holdings, bank reserves, deposit behaviour and other institutional factors.

Factors Affecting Money Multiplier

Important factors include:

✓ Currency-deposit ratio
✓ Reserve requirements
✓ Banks' excess reserves
✓ Public's preference for cash
✓ Banking behaviour
✓ Deposit composition

Other things equal:

Public holds more currency → Money Multiplier tends to ↓

Banks hold more reserves → Money Multiplier tends to ↓

Currency Leakage

When people hold part of newly created money as currency instead of redepositing it into banks, the deposit-expansion process becomes smaller.

Currency Leakage ↑ → Deposit Expansion ↓

Currency-Deposit Ratio ↑ → Money Multiplier tends to ↓

Reserve Ratio and Money Creation

Other things equal:

Reserve Ratio ↑ → Lending Capacity ↓ → Multiplier ↓

Reserve Ratio ↓ → Lending Capacity ↑ → Multiplier ↑

New Monetary Aggregates

RBI's revised framework also uses monetary aggregates designated NM1, NM2 and NM3.

NM1

NM1 = Currency with Public + Demand Deposits with Banking System + Other Deposits with RBI

Thus NM1 corresponds to the narrow monetary aggregate.

NM2

NM2 = NM1 + Short-Term Time Deposits of Residents

For this definition, short-term deposits include resident time deposits with contractual maturity up to and including one year.

NM3

NM3 = NM2 + Long-Term Time Deposits of Residents + Call/Term Funding from Financial Institutions

Do Not Confuse:

Traditional M1, M2, M3, M4 and revised NM1, NM2, NM3 are different classification frameworks.

Liquidity Aggregates – L1, L2, L3

RBI also compiles broader liquidity aggregates.

L1 = NM3 + Eligible Post Office Deposits

L2 = L1 + Specified Term Deposits/Borrowings/CDs of Financial Institutions

L3 = L2 + Public Deposits with NBFCs

For most basic competitive-exam questions, priority should be:

M0 → M1 → M2 → M3 → M4

Then revise NM1, NM2, NM3 and L1–L3 for advanced questions.

Traditional vs Revised Aggregates

Traditional	Revised / Additional Framework
M1	NM1
M2	NM2
M3	NM3
M4	L1, L2, L3 extend liquidity coverage

Important Exam Relationships

M2 = M1 + Post Office Savings Deposits

M3 = M1 + Bank Time Deposits

M4 = M3 + Total Post Office Deposits

Reserve Money = Currency in Circulation + Bankers' Deposits with RBI + Other RBI Deposits

Numerical – M1

Currency with Public = ₹30 lakh crore
Demand Deposits = ₹20 lakh crore
Other Deposits with RBI = ₹1 lakh crore

M1 = 30 + 20 + 1

M1 = ₹51 lakh crore

Numerical – M2

M1 = ₹51 lakh crore
Post Office Savings Deposits = ₹3 lakh crore

M2 = 51 + 3

M2 = ₹54 lakh crore

Numerical – M3

M1 = ₹51 lakh crore
Bank Time Deposits = ₹150 lakh crore

M3 = 51 + 150

M3 = ₹201 lakh crore

Numerical – M4

M3 = ₹201 lakh crore
Total eligible Post Office Deposits = ₹10 lakh crore

M4 = 201 + 10

M4 = ₹211 lakh crore

Numerical – Reserve Money

Currency in Circulation = ₹40 lakh crore
Bankers' Deposits with RBI = ₹10 lakh crore
Other Deposits with RBI = ₹1 lakh crore

Reserve Money

= 40 + 10 + 1

= ₹51 lakh crore

Most Important Exam Traps

Trap 1: M1 = Narrow Money; M3 = Broad Money.

Trap 2: M3 adds Time Deposits with Banks to M1.

Trap 3: M2 adds Post Office Savings Deposits to M1.

Trap 4: M4 adds Total Post Office Deposits to M3.

Trap 5: M1 uses Currency with Public; Reserve Money uses Currency in Circulation.

Trap 6: Money Supply is a Stock, not a flow.

Trap 7: Currency with banks is excluded from Currency with Public.

Trap 8: Money Multiplier and Investment Multiplier are different.

Exam-Oriented MCQs

1. Money supply is a:

A) Flow
B) Stock
C) Price
D) Ratio only

సమాధానం: B) Stock

2. Which is known as Narrow Money in India?

A) M0
B) M1
C) M3
D) M4

సమాధానం: B) M1

3. Which is known as Broad Money?

A) M1
B) M2
C) M3
D) Reserve ratio

సమాధానం: C) M3

4. M1 contains:

A) Currency with public
B) Demand deposits
C) Other deposits with RBI
D) All of the above

సమాధానం: D

5. M1 excludes:

A) Currency with public
B) Demand deposits with banks
C) Bank time deposits
D) Other deposits with RBI

సమాధానం: C

6. M2 equals:

A) M1 + Post Office Savings Deposits
B) M1 + Bank Time Deposits
C) M3 + Bank Time Deposits
D) M0 + GDP

సమాధానం: A

7. M3 equals:

A) M1 + Bank Time Deposits
B) M1 + Currency only
C) M2 − M1
D) M4 + Post Office Deposits

సమాధానం: A

8. M4 equals:

A) M3 + Total Post Office Deposits under the traditional definition
B) M1 + GDP
C) M0 + Investment
D) M2 − M1

సమాధానం: A

9. High-powered money is also called:

A) Reserve Money
B) National Income
C) Broad Money only
D) Fiscal deficit

సమాధానం: A

10. Reserve Money is also called:

A) Monetary Base
B) Disposable Income
C) National Saving
D) Capital formation

సమాధానం: A

11. Reserve Money contains:

A) Currency in circulation
B) Bankers' deposits with RBI
C) Other deposits with RBI
D) All of the above

సమాధానం: D

12. Currency with Public is obtained by:

A) Currency in circulation − Cash with banks
B) Currency + Bank cash
C) M3 − M1
D) Currency − GDP

సమాధానం: A

13. Which is included in M3 but not M1?

A) Bank Time Deposits
B) Currency with public
C) Demand deposits
D) Other RBI deposits

సమాధానం: A

14. Post Office Savings Deposits are specifically added to M1 to obtain:

A) M0
B) M2
C) M3
D) Reserve Money

సమాధానం: B) M2

15. Total eligible Post Office Deposits are added to M3 to obtain:

A) M1
B) M2
C) M4
D) M0

సమాధానం: C) M4

16. Demand deposits are generally:

A) Highly liquid
B) Completely illiquid
C) Physical capital
D) Tax revenue

సమాధానం: A

17. Fixed/term deposits are:

A) Time deposits
B) Currency notes
C) Demand currency
D) Capital goods

సమాధానం: A

18. Which aggregate has the stronger transactions-money orientation?

A) M1
B) M3
C) M4
D) L3

సమాధానం: A) M1

19. M3 is broader than M1 mainly because it includes:

A) Bank Time Deposits
B) Only coins
C) Only currency
D) GDP

సమాధానం: A

20. Money multiplier can be expressed broadly as:

A) Money Supply / Reserve Money
B) Reserve Money / Money Supply always
C) Income / Consumption
D) Saving / Investment

సమాధానం: A

Numerical MCQs

21. Currency with Public = 20, Demand Deposits = 10, Other RBI Deposits = 2. M1 is:

A) 20
B) 30
C) 32
D) 12

సమాధానం: C) 32

22. M1 = 50 and Post Office Savings Deposits = 5. M2:

A) 45
B) 50
C) 55
D) 250

సమాధానం: C) 55

23. M1 = 60 and Bank Time Deposits = 140. M3:

A) 80
B) 140
C) 200
D) 8,400

సమాధానం: C) 200

24. M3 = 200 and total eligible Post Office Deposits = 15. M4:

A) 185
B) 200
C) 215
D) 3,000

సమాధానం: C) 215

25. Currency in circulation = 40 and cash with banks = 4. Currency with Public:

A) 36
B) 40
C) 44
D) 10

సమాధానం: A) 36

26. Currency in circulation = 50, bankers' deposits with RBI = 12, other deposits with RBI = 3. Reserve Money:

A) 50
B) 62
C) 65
D) 150

సమాధానం: C) 65

27. Money Supply = 250 and Reserve Money = 50. Money Multiplier:

A) 2
B) 4
C) 5
D) 10

సమాధానం: C) 5

28. Money Multiplier = 4 and Reserve Money = 60. Money Supply:

A) 15
B) 64
C) 240
D) 600

సమాధానం: C) 240

29. In the simplest model, reserve ratio = 20%. Deposit multiplier:

A) 2
B) 4
C) 5
D) 20

సమాధానం: C) 5

30. In the simplest model, reserve ratio = 10%. Deposit multiplier:

A) 5
B) 10
C) 20
D) 100

సమాధానం: B) 10

31. Reserve ratio rises from 10% to 20%. Simple deposit multiplier changes from:

A) 10 to 5
B) 5 to 10
C) 10 to 20
D) 20 to 10

సమాధానం: A) 10 to 5

32. M1 = 100 and M3 = 400. Bank Time Deposits:

A) 100
B) 200
C) 300
D) 500

సమాధానం: C) 300

33. M1 = 80 and M2 = 90. Post Office Savings Deposits:

A) 10
B) 80
C) 90
D) 170

సమాధానం: A) 10

34. M3 = 500 and M4 = 530. Relevant Post Office Deposit addition:

A) 20
B) 30
C) 500
D) 1,030

సమాధానం: B) 30

35. Currency in circulation = 100, cash with banks = 8. Currency with Public:

A) 92
B) 100
C) 108
D) 12.5

సమాధానం: A) 92

Tricky MCQs

36. Which statement is correct?

A) M1 is Broad Money
B) M3 is Broad Money
C) M4 is Reserve Money
D) M0 is National Income

సమాధానం: B

37. Which statement is correct?

A) M3 = M1 + Time Deposits with Banks
B) M3 = M1 − Time Deposits
C) M1 includes all time deposits
D) M0 = M4

సమాధానం: A

38. Which is NOT part of traditional M1?

A) Currency with Public
B) Demand Deposits
C) Other Deposits with RBI
D) Bank Time Deposits

సమాధానం: D

39. Which is NOT part of Reserve Money?

A) Currency in Circulation
B) Bankers' Deposits with RBI
C) Other Deposits with RBI
D) All Bank Time Deposits of Public

సమాధానం: D

40. Currency held by banks is:

A) Included in Currency with Public
B) Deducted in calculating Currency with Public
C) Always part of demand deposits
D) Equal to M1

సమాధానం: B

41. Which tends to reduce the money multiplier, other things equal?

A) Higher currency-deposit ratio
B) Lower cash preference
C) Lower excess reserves
D) Greater redepositing

సమాధానం: A

42. Banks holding more excess reserves generally:

A) Reduces potential money multiplication
B) Raises multiplier automatically
C) Has no possible effect
D) Makes reserve money zero

సమాధానం: A

43. NM2 includes:

A) NM1 + short-term time deposits of residents
B) NM1 + GDP
C) M4 only
D) Currency only

సమాధానం: A

44. NM3 is broader than NM2 because it additionally includes:

A) Long-term resident time deposits and specified call/term funding
B) Only currency
C) Only coins
D) GDP

సమాధానం: A

45. L3 extends L2 by adding:

A) Public deposits with NBFCs
B) Currency with public only
C) Demand deposits only
D) GDP

సమాధానం: A

Assertion–Reason MCQs

Code

A) Assertion and Reason are true; Reason correctly explains Assertion.

B) Both are true; Reason is not the correct explanation.

C) Assertion is true; Reason is false.

D) Assertion is false; Reason is true.

46. Assertion: M3 is broader than M1.
Reason: M3 includes bank time deposits in addition to M1.

సమాధానం: A

47. Assertion: Currency with Public is smaller than currency in circulation when banks hold cash.
Reason: Cash held by banks is deducted from currency in circulation to calculate Currency with Public.

సమాధానం: A

48. Assertion: Money supply is a flow variable.
Reason: Money supply is measured at a point of time.

సమాధానం: D

49. Assertion: A higher reserve ratio lowers the simple deposit multiplier.
Reason: The simple multiplier is inversely related to the reserve ratio.

సమాధానం: A

50. Assertion: M1 is called Narrow Money.
Reason: M1 consists primarily of highly liquid transaction-oriented monetary assets.

సమాధానం: A

Additional High-Probability MCQs

51. Who compiles India's monetary aggregates?

A) RBI
B) SEBI alone
C) UPSC
D) NITI Aayog alone

సమాధానం: A) RBI

52. M0 is commonly associated with:

A) Reserve Money
B) Broad Money M3
C) National Income
D) Fiscal Deficit

సమాధానం: A

53. Which has greater liquidity?

A) Demand deposit
B) Long-term time deposit
C) Land
D) Building

సమాధానం: A

54. Which traditional measure adds Post Office Savings Deposits to M1?

A) M0
B) M2
C) M3
D) M4 directly from M1

సమాధానం: B

55. Which traditional measure adds bank time deposits to M1?

A) M0
B) M2
C) M3
D) M4 only

సమాధానం: C

56. High-powered money forms the:

A) Monetary base
B) GDP deflator
C) Fiscal deficit
D) Current account balance

సమాధానం: A

57. An increase in public preference for currency tends to:

A) Reduce deposit multiplication
B) Increase deposit multiplication necessarily
C) Eliminate money demand
D) Eliminate reserve money

సమాధానం: A

58. In the simple multiplier formula, if reserve ratio = 25%, multiplier is:

A) 2
B) 4
C) 5
D) 25

సమాధానం: B) 4

59. Which formula is correct?

A) M3 = M1 + Time Deposits with Banking System
B) M3 = M1 − Time Deposits
C) M2 = M1 + Bank Time Deposits
D) M1 = M3 + M4

సమాధానం: A

60. Which sequence best represents increasing traditional coverage?

A) M1 → M2/M3 → M4
B) M4 → M3 → M1
C) M3 → M1 → M0 only
D) M1 = M2 = M3 = M4

సమాధానం: A

One-Minute Master Table

Concept	Remember
Money Supply	Stock Concept
M0	Reserve Money / Monetary Base / High-Powered Money
M1	Narrow Money
M1	Currency with Public + Demand Deposits + Other RBI Deposits
M2	M1 + Post Office Savings Deposits
M3	M1 + Bank Time Deposits
M3	Broad Money
M4	M3 + Total Post Office Deposits
Currency with Public	Currency in Circulation − Cash with Banks
Reserve Money	Currency in Circulation + Bankers' RBI Deposits + Other RBI Deposits
Money Multiplier	Money Supply / Reserve Money
Simple Deposit Multiplier	1 / Reserve Ratio
Currency Holding ↑	Multiplier tends to ↓
Reserve Ratio ↑	Multiplier tends to ↓

చివరి నిమిషం పునశ్చరణ

Money Supply → Stock Concept

M0 → Reserve Money / High-Powered Money / Monetary Base

M1 → Narrow Money

M1 → Currency with Public + Demand Deposits + Other Deposits with RBI

M2 → M1 + Post Office Savings Deposits

M3 → M1 + Time Deposits with Banking System

M3 → Broad Money

M4 → M3 + Total Post Office Deposits

Currency with Public → Currency in Circulation − Cash with Banks

Reserve Money → Currency in Circulation + Bankers' Deposits with RBI + Other RBI Deposits

Money Multiplier → Money Supply / Reserve Money

Simple Deposit Multiplier → 1 / Reserve Ratio

Reserve Ratio ↑ → Multiplier ↓

Currency-Deposit Ratio ↑ → Multiplier ↓

NM2 → NM1 + Short-Term Resident Time Deposits

NM3 → NM2 + Long-Term Resident Time Deposits + specified Call/Term Funding

Exam Final Recall

Money Supply → Currency with Public → Demand & Time Deposits → M0 → M1 → M2 → M3 → M4 → Narrow Money → Broad Money → Reserve Money → Money Multiplier → NM1, NM2, NM3 → Liquidity Aggregates

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