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).

Consider the following statements about… - NCERT Class 12 Economics MCQ

NCERT Class 12 Economics — Chapter 5: Money and Banking

mcqmedium

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?

NCERT textbook question

From NCERT Introductory Macroeconomics · Page 13

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

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