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Q31 (CDS-II/2022) Economy › Money, Banking & Inflation › Monetary aggregates Answer Verified

Which one of the following forms of money supply is considered as the most widely used in the Indian monetary system?

Result
Your answer: —  Â·  Correct: C
Explanation

In the Indian monetary system, the Reserve Bank of India (RBI) publishes four alternative measures of money supply: M1, M2, M3, and M4 [4]. While M1 is the most liquid measure (narrow money), M3 is considered the most widely and commonly used measure of money supply [2]. M3 is also referred to as "aggregate monetary resources" [3]. It includes the components of M1 (currency with the public and demand deposits) plus net time deposits of commercial banks [3]. Historically, the RBI has shifted its focus toward M3 as a primary indicator for monetary policy and analysis because it captures a broader range of financial assets that serve as a store of value while remaining relatively liquid [2]. Although newer aggregates like NM3 have been introduced by working groups, M3 remains the standard broad money measure in general economic discourse regarding India [3].

Sources

  1. [1] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > Legal Definitions: Narrow and Broad Money > p. 48
  2. [4] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 54
  3. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.10 Money Supply > p. 55
  4. [3] https://www.tgc.ac.in/pdf/study-material/economics/Different_concepts_of_Money.pdf
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