Question

State various measures of money supply used in India.

Explain various measures of money supply used in India.

Explain M_l, M₂, M₃ and M₄ measures of money supply.

Answer 1

An economy contains a wide range of financial assets like cash, bank deposits, and more. People use different types of assets to carry out transactions, and no single asset is used for all purposes. Because it's difficult to determine which assets should be counted in the money supply, multiple definitions are used, such as M₁ and M₂.

The central banks of different countries, like the United States and India, apply distinct measures for calculating money supply. In India, the Reserve Bank of India (RBI) identifies four measures of money supply: M₁, M₂, M₃, and M₄. These classifications mainly differ in terms of their liquidity (how quickly they can be converted into cash) and the rate of return or interest they offer.