Measures of Money Supply : M0, M1, M2, M3 and M4
- Reserve Money (M0): It is also known as High-Powered Money, monetary base, base money etc.
- Narrow Money (M1):
- M2 = M1 + Savings deposits of post office savings banks.
- Broad Money (M3)
- M4 = M3 + All deposits with post office savings banks.
What is the purpose of different measures of money supply?
In the year 1977 central bank of India, i.e. RBI introduced four components of the money supply. The purpose of these four components is to measure the quantity and variation of the money supply. These components are M1, M2, M3 and M4.
What are the measures of money supply Class 12?
M2 = M1 + Savings deposits with the post office savings banks. M3= M1+ Time Deposits with the banks. Money Supply M4: The measure M4 of money supply includes not only all the items of M3 described above but also the total deposits with the post office savings organization.
What is money supply and its components?
Money supply refers to the total stock of money of all types ( currency as well as demand deposits) held by the people of a country at a given point of time. Money supply is measured in several ways which includes M1, M2, M3 and M4 measurement of money supply.
What is meant by an ideal supply of money?
Ideal supply of money is that money supply which is required to buy goods and services produced in an economy. In other words, we can say that this money keeps the aggregate demand equal to aggregate supply so that inflation or deflation situations does not exist in the economy.
What are the four measures of money supply?
These four alternative measures of money supply are labelled M1, M2, M3 and M4. The RBI will collect data and calculate and publish figures of all the four measures. Let us take a look at how they are calculated. M1 (Narrow Money) M1 includes all the currency notes being held by the public on any given day.
How is the money supply defined in economics?
While most people think that money supply is one big pile of cash in the economy, economists look at it very specifically. We can define the money supply in three different ways – M1, M2 and M3. M1 is the narrowest definition of money. M1 consists of coins and currency in circulation,…
What makes up the M1 measure of money supply?
We will look at each of them in more detail in the video and the text below. M1 includes all currency (i.e., cash) in circulation, traveler’s checks, demand deposits at commercial banks (or other depository institutions) held by the public, and other checkable deposits.
Is the measure of money supply an empirical matter?
The measurement of money supply is an empirical matter. We study the various measures of money supply published by the RBI. Till 1967-68 the RBI used to publish only a single measure of money supply (M) defined as the sum of currency and demand deposits, both held by the public.
