The Working Group of Y V Reddy proposed a new intermediate monetary aggregate to be referred to as N...........

Indian Economic System(PCS) Money and banking

The Working Group of Y.V.Reddy proposed a new intermediate monetary aggregate, to be referred to as NM2. In this context, consider the following statements:

1. New monetary aggregates would comprise of currency and residents’ long terms bank deposits.

2. It would stand in between two existing measures of M1 and M4.

Which of the following statements is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Correct Option: (d) Explanation: Statement 1 is incorrect: The new monetary aggregate would comprise of currency and residents’ short terms deposits. Statement 2 is incorrect: it lies between M1 and M3. Supplementary notes: New intermediate monetary aggregate The Working Group of Y.V.Reddy proposed a new intermediate monetary aggregate, to be referred to as NM2, comprising currency and residents’ short-term bank deposits which would stand in between narrow money (M1) (which includes only the non-interest-bearing monetary liabilities of the banking sector) and broad money (M3) (an allencompassing measure that includes long-term time deposits). The recommendation implied the partition of the maturity structure of bank deposits into short-term and long-term time deposits at one year of contractual maturity in order to elicit information about depositors’ preferences in holding money in various degrees of liquidity.