Option 1 -> M1 represents the most liquid forms of money including currency and demand deposits.
Option 2 -> M2 includes M1 plus savings deposits and small time deposits.
Option 3 -> M3 is the broad money measure that includes M2 plus large time deposits and institutional funds.
Option 4 -> M4 is the broadest measure including all deposits and liquid assets.
Hence, M3 -> M3 is the most commonly used measure of money supply, especially in countries like India. It represents 'broad money' and includes currency with the public, demand deposits, time deposits, and other deposits with the banking system. Central banks prefer M3 because it provides a comprehensive view of money in the economy, capturing both transaction money and near-money assets. The Reserve Bank of India and many other central banks use M3 as the key indicator for monetary policy formulation and tracking money supply growth -> correct