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Q108 (CAPF/2018) Economy › Money, Banking & Inflation › Monetary aggregates Answer Verified

The Reserve Bank of India defines narrow money as

Result
Your answer: —  Â·  Correct: A
Explanation

The Reserve Bank of India (RBI) classifies money supply into four alternative measures: M1, M2, M3, and M4. M1 is specifically defined as 'Narrow Money' because it represents the most liquid components of the money supply [3]. According to the RBI's definition, M1 consists of currency held by the public (CU), which includes currency notes and coins, and net demand deposits (DD) held by commercial banks [2]. While some definitions include 'Other Deposits' with the RBI, the primary components are CU and DD. Option 2 refers to M2, which adds post office savings to M1 [2]. Option 3 describes M3, known as 'Broad Money', which includes net time deposits [2]. Option 4 describes M4, the most comprehensive measure [2]. Therefore, narrow money is strictly the sum of currency with the public and demand deposits [2].

Sources

  1. [2] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > Legal Definitions: Narrow and Broad Money > p. 48
  2. [3] https://www.tgc.ac.in/pdf/study-material/economics/Different_concepts_of_Money.pdf
  3. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
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SIMILAR QUESTIONS

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