Which one of the following forms of money supply is considered as the most widely used in the Indian monetary system?
- A.M1
- B.M2
- C.M3
- D.M4
Correct answer
Explanation
The correct answer is C, M3. M3, called broad money, is the measure of money supply most commonly used by the RBI for analysis and policy.
The Reserve Bank of India introduced four measures of money supply in 1977. M1 (narrow money) is currency with the public plus demand deposits with banks and other deposits with the RBI. M2 is M1 plus savings deposits with post office savings banks. M3 is M1 plus time deposits with banks, and it is the aggregate the RBI tracks most closely; growth in M3 is often reported as "money supply growth". M4 is M3 plus total deposits with the post office savings organisation, excluding National Savings Certificates.
A is wrong because M1 is the most liquid measure, but it is narrow and leaves out time deposits, a large part of bank money. B is wrong because M2 adds only post office savings deposits and is little used. D is wrong because M4, the least liquid measure, is rarely used in analysis.
Exam tip: M1 = narrow money (most liquid); M3 = broad money (most used); liquidity falls from M1 to M4.
Practice Questions
View allWhich one among the following pairs of type of firm and feature is not correctly matched ?
- A.Oligopoly firm : Interdependence in decision-making
- B.Monopolistic competitive firm : Firm is a price setter
- C.Monopoly firm : Produces an efficient level of output
- D.Perfectly competitive firm : Produces socially optimum output
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A monopolist restricts output and charges a higher price, so it does not produce the efficient level of output. A monopoly is a single seller of a product with no close substitutes and strong barriers to entry.
Read the full explanation →Which one of the following statements is not correct?
- A.When total utility is maximum, marginal utility is zero.
- B.When total utility is decreasing, marginal utility is negative.
- C.When total utility is increasing, marginal utility is positive.
- D.When total utility is maximum, marginal and average utility are equal to each other.
Show answer
At the point where total utility is highest, marginal utility is zero but average utility is still positive, so the two cannot be equal.
Read the full explanation →Which one of the following is not an objective of the MGNREGA?
- A.Providing up to 100 days of skilled labour in a financial year
- B.Creation of productive assets
- C.Enhancing livelihood security
- D.Ensuring empowerment to women
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The Act guarantees at least 100 days of unskilled manual work, not skilled labour.
Read the full explanation →Which one of the following is the opportunity cost of a chosen activity ?
- A.Out of pocket cost
- B.Out of pocket cost plus cost incurred by the Government
- C.Value of all opportunities forgone
- D.Value of next best alternative that is given up
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Opportunity cost is what you sacrifice by choosing one option, measured by the best option you did not take. Because resources such as time, money and land are scarce, choosing one use means giving up others.
Read the full explanation →Which one of the following best explains the "crowding-in effect" observed in India ?
- A.Reduction in private sector borrowing
- B.Public investment leading to increase in private investment
- C.Decline in fiscal deficit
- D.Increase in imports due to higher demand
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Crowding-in means that government spending pulls private investment in rather than pushing it out. When the government builds roads, railways, ports and power lines, it lowers the cost of doing business and raises demand for cement, steel and machinery.
Read the full explanation →