Correct Option
The correct option is 1 and 3 only.
Explanation
Demand deposits are funds held in bank accounts that can be withdrawn by the depositor at any time without prior notice. They constitute a significant portion of the money supply in a modern economy due to their high liquidity and acceptance as a medium of exchange.
Statement-wise Analysis
- Statement 1 is Correct: These deposits are explicitly termed "demand deposits" because the bank is legally obligated to pay the money back to the depositor immediately upon demand. Unlike time deposits (fixed deposits), there is no maturity period or lock-in requirement for withdrawal.
- Statement 2 is Incorrect: In the modern economy, demand deposits are considered a form of money. Money is defined by its functions, primarily as a medium of exchange. Since demand deposits can be used directly to settle transactions (via cheques, debit cards, or digital transfers) and are included in the narrow money supply (M1), they are treated as money, specifically "fiduciary money" or "bank money."
- Statement 3 is Correct: A defining feature of demand deposits is the facility to issue cheques. A cheque is a paper instruction to the bank to pay a specific amount from the depositor’s account to the person in whose name the cheque has been issued. This facility allows demand deposits to function as a medium of exchange without the use of physical cash.
Key Takeaway: Demand deposits are considered money in the modern banking system because they are liquid and can be used directly for transactions through instruments like cheques, distinguishing them from time deposits.