JAIIB · IEIFS · Chapter 14

Money Supply and Inflation

Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Indian Economy and Indian Financial System — JAIIB.

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Demand deposits = all liabilities payable on demand?

current account balances, demand portion of savings deposits, margins held against LCs / guarantees, overdue FDs, recurring deposits, cash certificates.

Time deposits = liabilities payable otherwise than on demand?

fixed deposits, cash certificates, cumulative/recurring deposits, time portion of savings, etc.

M3 is the policy aggregate?

referenced in MPC statements, RBI's Annual Report and the WSS.

M0 (Reserve Money) — Composition / Liquidity / Use?

Composition: Currency in circulation + Bankers' deposits with RBI + Other deposits with RBI; Liquidity: Most liquid; Use: RBI's operational instrument

M1 (Narrow Money) — Composition / Liquidity / Use?

Composition: Currency with public + Demand deposits with banks + Other deposits with RBI; Liquidity: Highly liquid; Use: Transactions function

M2 — Composition / Liquidity / Use?

Composition: M1 + Post-Office Savings deposits; Use: Households' near-cash

M3 (Broad Money) — Composition / Liquidity / Use?

Composition: M1 + Time deposits with banks; Liquidity: Less liquid; Use: RBI's policy aggregate

M4 — Composition / Liquidity / Use?

Composition: M3 + All Post-Office deposits (excl. NSCs); Liquidity: Least liquid; Use: Broadest measure

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