Money Supply & Inflation
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What does M0 (Reserve Money) represent in India's money supply framework?
M0, also called High-Powered Money or Monetary Base, comprises currency in circulation plus bankers' deposits with RBI and other deposits with RBI. It is the base upon which broader money supply is built.
What is M1 in India's monetary aggregates?
Currency with public plus demand deposits with banks.
Which component distinguishes M2 from M1 in India's monetary aggregates?
M2 includes all components of M1 (currency with public + demand deposits + other deposits with RBI) plus savings deposits with post office savings banks. M1 does not include post office savings deposits.
What does the term 'High-Powered Money' refer to in monetary economics?
Reserve money or monetary base created by the central bank.
What is the Money Multiplier and how is it calculated?
The Money Multiplier measures how much money the banking system creates for every unit of reserve money; it equals the broad money supply (M3) divided by Reserve Money (M0). A higher multiplier indicates greater credit expansion capacity.
What is the difference between narrow money and broad money?
Narrow money is M1; broad money is M3 including time deposits.
How does the Cash Reserve Ratio (CRR) affect money supply?
CRR is the percentage of a bank's net demand and time liabilities that must be maintained as cash with RBI. An increase in CRR reduces the funds available for lending, thereby contracting money supply.
What is the primary cause of Creeping Inflation?
Slow and steady rise in price level below 3% annually.
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