Explain RBI's measures of money supply.
Answers
Measures of Money Supply in IndiaThe total stock of money in circulation among the public at a particular point of time is called money supply. The measures of money supply in India are classified into four categories M1, M2, M3 and M4 along with M0. This classification was introduced in April 1977 by Reserve Bank of India. Let’s discuss these one by one:
Reserve Money (M0): It is also known as High-Powered Money, monetary base, base money etc.
M0 = Currency in Circulation + Bankers’ Deposits with RBI + Other deposits with RBI
It is the monetary base of economy.
Narrow Money (M1):
M1 = Currency with public + Demand deposits with the Banking system (current account, saving account) + Other deposits with RBI
M2 = M1 + Savings deposits of post office savings banks
Broad Money (M3)
M3 = M1 + Time deposits with the banking system
M4 = M3 + All deposits with post office savings banks