Question

State the meaning and components of M1 measure of money supply.

Hint:

M1 is the measure of money supply that includes currency with the public, demand deposits, and other deposits that can be used immediately for transactions.

Answer 1

The M1 measure of money supply refers to the narrow money supply. It includes the most liquid forms of money that are used for transactions. M1 includes:
1. Currency with the public:
This includes coins and paper currency in circulation that are held by the public, excluding currency with banks.
2. Demand deposits with banks:
These are deposits that can be withdrawn on demand by the account holder without any delay, including checking accounts.
3. Other deposits with the Reserve Bank of India (RBI):
This includes the deposits held by the RBI that are available for immediate withdrawal.
M1 is the most liquid measure of the money supply, as it includes only those forms of money that can be used for immediate consumption.