Question

Explain the components of money supply.

Hint:

M1 = Currency with public + Demand deposits with banks + Other deposits with RBI.

Answer 1

Step 1: Ask "what actually functions as money right now?":
Anything the public can spend immediately without conversion qualifies — physical cash in hand, and bank balances that can be spent by cheque or card on demand.

Step 2: List each qualifying component:
(i) Notes and coins circulating with the public, (ii) chequable/demand deposits held at commercial banks, (iii) a small residual category of other deposits at the RBI (from non-bank, non-government entities).

Step 3: Note what is deliberately excluded:
Time (fixed) deposits are excluded from this narrow measure because they cannot be withdrawn on demand without penalty, so they are less liquid and belong to broader measures (M2/M3), not M1.

Final Answer:
The three components are currency with the public, demand deposits with banks, and other deposits with the RBI.