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Money supply refers to the stock of money in circulation in the economy at a given point of time.
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Measures of Money Supply
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The four most common measures of money supply, which are used in India, are as follows: (a) Narrow Money (M 1) is equal to Currency with the public plus Demand deposits with the banking system plus `Other’ deposits with the RBI. (b) M2 is equal to M1 plus Savings deposits of post office savings banks (c) M3 is equal M I plus Time deposits with the banking system (d) M4 is equal M3 plus All deposits with post office savings banks (excluding National Savings Certificates). 1. `Currency with the public' is currency in circulation less cash held by banks. 2. ’Demand deposits' include all liabilities which are payable on demand and they include current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/ guarantees, balances in overdue fixed deposits, cash certificates and cumulative/ recurring deposits, etc. 3. `Time deposits' are those which are payable otherwise than on demand and they include fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, etc. Numerical Questions based on Money Supply Given, M4 - Rs. 750000 Crores M1 - Rs. 400000 Crores Currency with public - Rs. 100000 Crores Demand deposit with banking system - Rs. 150000 Crores Other deposit with RBI - Rs. 150000 Crores Savings deposit of post office savings banks - Rs. 60000 Crores All deposit with post office savings bank excluding NSCs - Rs. 50000 Crores Calculate Time deposit with banking system a. Rs. 200000 Crores b. Rs. 250000 Crores c. Rs. 300000 Crores d. Rs. 350000 Crores Ans - c Solution M4 = M3+All deposit with post office savings bank excluding NSCs M3 = M1+Time deposit with banking system M4 = M1+Time deposit with banking system+All deposit with post office savings bank excluding NSCs Time deposit with banking system = M4 - M1 - All deposit with post office savings bank excluding NSCs Time deposit with banking system = 750000 - 400000 - 50000 Time deposit with banking system = 300000 Crores ............................................. Given, Currency with public - Rs. 90000 Crores Demand deposit with banking system - Rs. 180000 Crores Time deposits with banking system - Rs. 220000 Crores Other deposit with RBI - Rs. 260000 Crores Savings deposit of post office savings banks - Rs. 60000 Crores All deposit with post office savings bank excluding NSCs - Rs. 50000 Crores Calculate broad money M3. a. Rs. 490000 Crores b. Rs. 530000 Crores c. Rs. 570000 Crores d. Rs. 750000 Crores Ans - d Solution : M1 = currency with public + demand deposit with the banking system + other deposits with RBI M1 = 90000+180000+260000 M1 = 530000 M3 = M1+Time deposit with banking system So, M3 = 530000+220000 M3 = 750000 Crores ............................................. Given, Currency with public - Rs. 90000 Crores Demand deposit with banking system - Rs. 180000 Crores Time deposits with banking system - Rs. 220000 Crores Other deposit with RBI - Rs. 260000 Crores Savings deposit of post office savings banks - Rs. 60000 Crores All deposit with post office savings bank excluding NSCs - Rs. 50000 Crores Calculate Narrow money M1. a. Rs. 490000 Crores b. Rs. 530000 Crores c. Rs. 570000 Crores d. Rs. 750000 Crores Ans - b B is the right ans. Solution M1 = currency with public + demand deposit with the banking system + other deposits with RBI M1 = 90000+180000+260000 M1 = 530000 ……………………………………………………………………………………………………………………………………………
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