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What is “narrow money” ?
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- The sum of currency in circulation and the demand deposits in banks
- The sum of MI money and the time deposits
- The sum of currency in circulation with the public and the cash reserves held by banks
- The market value of the stocks held by all the holders excluding the promoters
- The sum of currency in circulation and the demand deposits in banks
Correct Option: A
The four main monetary aggregates of measures of money supply which reflect the state of the monetary sector are:- (i) M1 (Narrow money)= Currency with the public + demand deposits of the public; (ii) M2= M1 + Post Office Savings deposits; (iii) M3 (Broad money)= M1 + time deposits of the public with banks; and (iv) M4= M3 + Total post office deposits. So ‘Narrow Money’ is simply a category of money supply that includes all physical money like coins and currency along with demand deposits and other liquid assets held by the central bank. This category of money is considered to be the most readily available for transactions and commerce.
