Question

Which of the following statements is true?

• A. Supply of money is a flow concept
• B. Notes and coins are legal tenders
• C. OD (other deposits) includes deposits of the government of the country with RBI also
• D. Supply of money includes stock of money held by the government also

Hint:

Legal tender refers to money that is recognized by law and must be accepted for payment of debts. In India, notes and coins issued by the RBI are legal tenders.

Answer 1

The Correct Option is B

Step 1: Understanding the Supply of Money:
The supply of money refers to the total stock of money circulating in the economy. It is used as a measure of liquidity and is crucial for maintaining economic stability. The money supply includes cash (notes and coins) and demand deposits.
Step 2: Analyzing the Options:
- Option (A) Supply of money is a flow concept: This is incorrect. The supply of money is considered a stock concept, not a flow concept, as it refers to the total amount of money available at a given point in time. A flow concept, such as income or expenditure, measures economic activity over time.
- Option (B) Notes and coins are legal tenders: This is the correct answer. Legal tender refers to money that must be accepted for payment of debts. In India, notes and coins issued by the Reserve Bank of India are recognized as legal tender.
- Option (C) OD (other deposits) includes deposits of the government of the country with RBI also: This is not correct. OD (other deposits) refers to all deposits other than currency in circulation, but it does not include government deposits with the RBI.
- Option (D) Supply of money includes stock of money held by the government also: This is incorrect. The stock of money held by the government (like its reserves) is not included in the money supply, as it is not circulating in the economy.
Step 3: Conclusion and Answer:
The correct answer is (B) because notes and coins issued by the RBI are considered legal tender and must be accepted for payment in India.