Question

In an economy, the currency held by the public, Net Demand Deposits with Commercial Banks and Net Time Deposits with Commercial Banks stand at ₹ 1,42,000 crore, ₹ 22,000 crore and ₹ 86,000 crore respectively. The value of Money Supply (M1) would be ₹ _______ crore.

• A. 2,50,000
• B. 86,000
• C. 1,64,000
• D. 1,42,000

Hint:

Money Supply (M1) includes currency held by the public, demand deposits, and other liquid assets. It represents the most liquid forms of money in an economy.

Answer 1

The Correct Option is C

Step 1: Identifying the components of M1.
The M1 measure of money supply, also known as narrow money, consists of the most liquid assets: currency held by the public and demand deposits with the banking system. It specifically excludes time deposits (fixed deposits).
Step 2: Applying the formula.
$M1 = \text{Currency with Public} + \text{Net Demand Deposits}$
Note: Net Time Deposits (₹ 86,000 crore) are part of broader money (M3) and are not included in M1.
$M1 = ₹ 1,42,000 \text{ crore} + ₹ 22,000 \text{ crore} = ₹ 1,64,000 \text{ crore}$.
Step 3: Conclusion.
By summing the currency and demand deposits, we arrive at a total M1 value of ₹ 1,64,000 crore.
Final Answer: ₹ 1,64,000 crore.