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    Question

    In the RBI’s monetary aggregate framework, M1 is known

    as Narrow Money due to its high liquidity. Which of the following combinations correctly identifies the components of M1?
    A Currency with the public + Savings deposits with Post Office savings banks Correct Answer Incorrect Answer
    B Currency with the public + Demand deposits with the banking system + 'Other' deposits with the RBI Correct Answer Incorrect Answer
    C Currency with the public + Time deposits with the banking system Correct Answer Incorrect Answer
    D Currency with the public + Total deposits with Post Office savings organisations Correct Answer Incorrect Answer
    E M3 – Currency with the public Correct Answer Incorrect Answer

    Solution

    M1 represents the Narrow Money which is the most liquid form of money. It if calculated as: M1 = Currency with the public + Demand deposits with the banking system + ‘Other’ deposits with the RBI ·        Where Currency with the public means notes and coins,  ·        Demand Deposits include current and savings accounts that can be withdrawn at any time, ·        Other deposits with the RBI are the deposits from foreign central banks, quasi-government agencies, etc. Note - From Board Money (M3), M1 can be calculated as: M1 = M3 - Time deposits with the banking system

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