Define money supply and explain its components

cbse-class-12

#1

Define money supply and explain its components.
or
Explain the various components of supply of money used by RBI.


#2

The total stock of money in circulation among the public at a particular point of time is called money supply. Money supply is a stock variable. RBI publishes figures for four alternative measures of money supply, viz, $M_1$,$M_2$,$M_3$ and $M_4$.
They are defined as, $M_1$ = CU + DD
Where, CU is Currency (notes plus coins) held by the public and DD is net Demand Deposits held by commercial banks. The word ‘net’ implies that only deposits of the public held by the banks are to be included in money supply. The inter bank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of money supply.
$M_2$ = $M_1$+ Savings deposits with post office savings banks
$M_3$ = $M_1$+ Net time deposits of commercial banks
$M_4$ = $M_3$ + Total deposits with post office savings organisations (excluding National Savings Certificates)