- Money supply is the total stock of money in circulation among the public.
- It includes currency notes, coins, and public deposits in banks.
- RBI publishes figures for four alternative measures of money supply.
M1 (Most Liquid)
- M1 = Currency with the Public + Demand deposits of public with banks.
- Represents the most liquid forms of money.
M2
- M2 = M1 + Savings Deposits with Post Office Savings Bank.
- Expands M1 by adding less liquid savings deposits.
M3 (Broad Money, Most Commonly Used)
- M3 = M1 + Time deposits of public with banks.
- Includes less liquid time deposits.
- Also called “aggregate monetary resources”.
M4 (Least Liquid)
- M4 = M3 + Total deposits with Post Office Savings Bank.
- The broadest measure, incorporating all deposits.
Diagram: Money Supply
- M1: Represents the most liquid forms of money, including currency and demand deposits.
- M2: Expands M1 by adding savings deposits, indicating a broader money supply.
- M3: Includes time deposits, reflecting money that is less liquid but still part of the supply.
- M4: The broadest measure, incorporating all deposits, showing the total money supply.