The 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:
Table of Contents
The liquidity means how fast an instrument can be converted into cash. The liquidity of these measures are in order M1>M2>M3>M4 i.e. M1 is most liquid and M4 is least liquid.
It is the relationship between monetary base and money supply in economy. The amount money that banks generates with each unit (Rs in case of India) of money. It is the ratio of deposits to the reserves in the banking system.
For example let’s say total deposit in banking system is $100 and reserve ratio requirement is 10%.
The banks can lend 90% of deposit i.e. $90. This $90 that banks will lend to its customers will ultimately be deposited in another bank which can further lend 90% of that i.e. $81 and cycle continues.
Macroeconomics Class 12th – Chapter 3 – Page 39 to 44
Download Article as PDF
We hope you understood the concept of measures of money supply. Here are some useful articles for you to read next:
Click to go to RBI Grade B Preparation Page
Tags: money supply, m0, measures of money supply, broad money, m2 money supply, narrow money, m3 money supply, money measurement, monetary base, monetary aggregates, what is money supply, what is m2, money supply definition, determinants of money supply, components of money supply, m2 m3, m2 vs m3, m3 meaning, types of money in economics, measures of money supply in india, money supply in india
SBI Clerk Course 2022
ECGC PO Course 2022
SIDBI Grade A Course 2022
RBI Assistant Course 2022
SSC CHSL Course 2022
DSSSB JE Electrical 2022
Punjab Civil Services 2022
ESIC Deputy Director 2022