Consider the following Statements about the Money Supply in an economy 1 M1 Narrow Money has the max...........

Economic Affairs Money Supply and Monetary Policy

Consider the following Statements about the Money Supply in an economy.

1. M1 (Narrow Money) has the maximum liquidity and M4 has the minimum liquidity.

2. M3 (Broad Money) is used by economists to estimate the entire money supply within an economy, and by governments to direct policy and control inflation over medium and long-term periods.

3. M1 (Narrow Money) consists of currency with the Public, Demand Deposits with the Banking System and ‘Other’ Deposits with the RBI.

Which of the above statements is/are correct?

3 Only

2 Only

2 and 3 only

All of the above

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Explanation:

..All the statements are correct.
M0 and M1, also called narrow money, normally include coins and notes in circulation and other money equivalents that are easily convertible into cash.
The narrowest, called M1 includes currency and checking deposits.
M2 includes M1 plus short-term time deposits in banks and 24-hour money market funds.
M3 includes M2 plus longer-term time deposits and money market funds with more than 24-hour maturity. The exact definitions of the three measures depend on the country.
M4 includes M3 plus other deposits. The term broad money is used to describe M2, M3 or M4, depending on the local practice.