Consider the following statements about 'Broad Money' (M3): 1. It excludes the currency held by the public which is part of M1. 2. It includes net time deposits of commercial banks. 3. It captures the total aggregate monetary resources of the banking sector. Which of the statements given above is/are correct?

The correct option is 2 and 3 only. Explanation The Reserve Bank of India (RBI) categorizes money supply into four aggregates: M1, M2, M3, and M4. Broad Money (M3) is a comprehensive measure of the money supply that reflects the total aggregate monetary resources in the economy. Statement-wise Analysis: - Statement 1 is Incorrect. M3 is defined as M1 + Net Time Deposits with commercial banks. Since M1 consists of currency held by the public, demand deposits, and other deposits with the RBI, M3 automatically includes the currency held by the public. It does not exclude it. - Statement 2 is Correct. The primary distinction between Narrow Money (M1) and Broad Money (M3) is that M3 includes Net Time Deposits (such as Fixed Deposits and Recurring Deposits) held by commercial banks, which are not part of M1. - Statement 3 is Correct. In RBI terminology, M3 is explicitly referred to as "Aggregate Monetary Resources". It represents the total monetary liabilities of the banking sector to the public, covering both liquid assets (currency and demand deposits) and less liquid assets (time deposits). Key Takeaway: M3 (Broad Money) = M1 + Net Time Deposits with Commercial Banks. It is technically termed "Aggregate Monetary Resources" and includes all components of M1 (currency and demand deposits).

NCERT Class 12 Economics — Chapter 5: Money and Banking

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Consider the following statements about 'Broad Money' (M3):

It excludes the currency held by the public which is part of M1.
It includes net time deposits of commercial banks.
It captures the total aggregate monetary resources of the banking sector.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A2 only
B1 and 2 only
C1, 2 and 3
D2 and 3 only

Did you get this right?

Solution

The correct option is 2 and 3 only.

Explanation

The Reserve Bank of India (RBI) categorizes money supply into four aggregates: M1, M2, M3, and M4. Broad Money (M3) is a comprehensive measure of the money supply that reflects the total aggregate monetary resources in the economy.

Statement-wise Analysis:

Statement 1 is Incorrect. M3 is defined as M1 + Net Time Deposits with commercial banks. Since M1 consists of currency held by the public, demand deposits, and other deposits with the RBI, M3 automatically includes the currency held by the public. It does not exclude it.
Statement 2 is Correct. The primary distinction between Narrow Money (M1) and Broad Money (M3) is that M3 includes Net Time Deposits (such as Fixed Deposits and Recurring Deposits) held by commercial banks, which are not part of M1.
Statement 3 is Correct. In RBI terminology, M3 is explicitly referred to as "Aggregate Monetary Resources". It represents the total monetary liabilities of the banking sector to the public, covering both liquid assets (currency and demand deposits) and less liquid assets (time deposits).

Key Takeaway:
M3 (Broad Money) = M1 + Net Time Deposits with Commercial Banks. It is technically termed "Aggregate Monetary Resources" and includes all components of M1 (currency and demand deposits).

Your note

More from Chapter 5: Money and Banking

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The 'Currency Deposit Ratio' in the banking system is primarily determined by:

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Consider the following statements regarding the functions of money: 1. Economic exchanges without money are referred to as liquidity exchanges. 2. The principal role of money is to facilitate exchanges by acting as a medium of exchange. 3. In a barter system, the search costs increase as the number of individuals in the economy increases. Which of the statements given above is/are correct?

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With reference to the 'Unit of Account' function of money, consider the following statements: 1. If there is a general increase in the price level, the value of money in terms of commodities increases. 2. It allows the value of all goods and services to be expressed in monetary units. 3. It prevents the calculation of relative prices of different commodities. Which of the statements given above is/are correct?

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Consider the following statements regarding money as a 'Store of Value': 1. Money is an asset that can act as a store of value. 2. The value of money is irrelevant for it to perform the function of a store of value. 3. Storage costs of money are considerably lower compared to perishable commodities like rice. Which of the statements given above is/are correct?

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The correct option is 2 and 3 only.

Explanation

Statement-wise Analysis:

Statement 1 is Incorrect. M3 is defined as M1 + Net Time Deposits with commercial banks. Since M1 consists of currency held by the public, demand deposits, and other deposits with the RBI, M3 automatically includes the currency held by the public. It does not exclude it.
Statement 2 is Correct. The primary distinction between Narrow Money (M1) and Broad Money (M3) is that M3 includes Net Time Deposits (such as Fixed Deposits and Recurring Deposits) held by commercial banks, which are not part of M1.
Statement 3 is Correct. In RBI terminology, M3 is explicitly referred to as "Aggregate Monetary Resources". It represents the total monetary liabilities of the banking sector to the public, covering both liquid assets (currency and demand deposits) and less liquid assets (time deposits).