Question

Of the alternative measures of supply of money by Reserve Bank of India which is the correct component of M1?

• A. Currency note and coins (CC)
• B. Demand deposits (DD)
• C. Savings deposit in post office savings bank
• D. Both (A) and (B)

Hint:

M1 consists of currency notes, coins, and demand deposits, which are the most liquid forms of money.

Answer 1

The Correct Option is D

Step 1: Understanding M1 in money supply.
M1 is a measure of the money supply that includes the most liquid forms of money in an economy. It consists of currency notes and coins in circulation, as well as demand deposits (i.e., money that can be withdrawn from banks at any time without notice).

Step 2: Analyzing the options.
(A) Currency note and coins (CC): Correct. Currency notes and coins in circulation are part of M1.
(B) Demand deposits (DD): Correct. Demand deposits are included in M1 because they are easily accessible for transactions.
(C) Savings deposit in post office savings bank: Incorrect. Savings deposits are not part of M1, as they are less liquid than demand deposits.
(D) Both (A) and (B): Correct. Both currency notes and coins, as well as demand deposits, are components of M1.

Step 3: Conclusion.
The correct components of M1 are currency note and coins and demand deposits. Thus, the correct answer is (D).