CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking
In the RBI's traditional monetary aggregates, which of the following is the correct composition of M1 (narrow money)?
M1 consists of currency with the public, demand deposits with banks and other deposits with the RBI. It is called narrow money because it contains only highly liquid components. Time deposits and post office savings are left for broader aggregates such as M2 and M3.
- ACurrency with the public + demand deposits with banks + other deposits with RBICorrect
- BCurrency with the public + time deposits with banks + post office savings deposits
- CCurrency with the public + all deposits with banks + post office savings deposits
- DCurrency with the public + time deposits with banks only
Explanation
M1 is the most liquid aggregate: currency with the public (notes and coins), demand deposits of the public with banks, and other deposits with the RBI. Time deposits and post office savings are added only in broader aggregates, so the other options include items that do not belong in M1.
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