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CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking

In the RBI's traditional classification, M3 is defined as M1 plus which of the following?

M3 equals M1 plus time deposits with the banking system, and is known as broad money. Post office savings deposits are not part of M3; adding them to M3 gives M4, while adding them to M1 gives M2.

  1. ASavings deposits with post office savings organisations
  2. BTime deposits with the banking systemCorrect
  3. CTotal post office deposits including National Savings Certificates
  4. DDeposits of the Government with the RBI

Explanation

M3 = M1 + time deposits with the banking system, and is called broad money. Post office savings bank deposits are added to M3 to get M4 (and to M1 to get M2), so option one describes M2 or M4 rather than M3.

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