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M3 is the most commonly used measure of money supply. It is also known as aggregate monetary resources. M3 is defined as the sum of which of the following?

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M3 is the most commonly used measure of money supply. It is also known as aggregate monetary resources. M3 is defined as the sum of which of the following?

A. Savings deposits with Post Office Savings Banks
B. Net time deposits of Commercial Banks
C. Total deposits with Post Office Savings Organisations
D. Currency
E. Net demand deposits held by Commercial Banks

Options:

  1. B, D, and E
  2. B, C, and D
  3. A, B, and C
  4. D and E

1 Answer

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Answer: (1) B, D, and E

Explanation:

The measure of money supply M3 is also referred to as "Broad Money" and includes the following components:

  • B. Net time deposits of Commercial Banks: This includes fixed deposits and recurring deposits with commercial banks.
  • D. Currency: This refers to the currency in circulation, including both coins and paper money held by the public.
  • E. Net demand deposits held by Commercial Banks: This includes all demand deposits, such as current account deposits, which are available for withdrawal on demand without any notice.

Components of M3 (Broad Money):

  • M1 (Narrow Money): Currency with the public + Demand deposits with the banking system (including current and savings deposits) + Other deposits with the RBI.
  • M3 (Broad Money): M1 + Net time deposits with banks.

Given these definitions, M3 comprises components B, D, and E, making option (1) the correct answer.

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