The correct option is 2 and 3 only.
Explanation
The supply of money refers to the total stock of money of various forms held by the public at a specific point in time. It is a crucial macroeconomic variable that influences interest rates, inflation, and economic growth.
Statement-wise Analysis
- Statement 1 is Incorrect. In economics, variables are classified as either stock or flow. A stock variable is measured at a specific point in time, whereas a flow variable is measured over a period of time. The supply of money is measured at a particular date (e.g., as of March 31st); therefore, it is a stock variable. In contrast, changes in the money supply over a year would be a flow concept.
- Statement 2 is Correct. The Reserve Bank of India (RBI) is the central monetary authority in India. It regulates the money supply through various quantitative and qualitative tools of monetary policy, such as the Repo Rate, Cash Reserve Ratio (CRR), and Open Market Operations (OMO).
- Statement 3 is Correct. The total money supply is determined by the interaction of three agents:
- The Central Bank (RBI): It issues High-Powered Money (Monetary Base).
- Commercial Banks: They create money through the credit creation process (Money Multiplier).
- The Public: Their preference for holding cash versus bank deposits (Currency-Deposit Ratio) affects the banking system's ability to create credit.
Key Takeaway
Money Supply is a stock concept. While the Central Bank regulates the monetary base, the final money supply is a result of the Money Multiplier process, which involves the Central Bank, Commercial Banks, and the Public.