CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking
In an economy, currency with the public is ₹600 crore, demand deposits with banks are ₹1,400 crore, other deposits with the central bank are ₹50 crore and time deposits with banks are ₹3,000 crore. Using the standard Indian definitions, what is the narrow money M1?
M1 is ₹2,050 crore. Narrow money equals currency with the public plus demand deposits with banks plus other deposits with the central bank, so 600 plus 1,400 plus 50. Time deposits are excluded because they belong to broader money measures, not M1.
- A₹2,050 croreCorrect
- B₹2,000 crore
- C₹5,050 crore
- D₹1,450 crore
Explanation
M1 = currency with the public + demand deposits with banks + other deposits with the RBI = 600 + 1,400 + 50 = ₹2,050 crore. Omitting the other RBI deposits gives 2,000, which is wrong. Including time deposits gives 5,050, which is closer to a broader aggregate, not M1.
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