CA Foundation · Business Economics · Money Market
Which of the following is the most liquid among the measures of money supply in India, and why?
M1 is the most liquid measure of money supply because it contains only currency with the public, demand deposits and other RBI deposits, all of which can be used immediately for payments. Broader measures M2, M3 and M4 add less liquid time and post office deposits.
- AM4, because it includes post office deposits
- BM3, because it includes time deposits
- CM2, because it includes post office savings deposits
- DM1, because it contains only money that can be used immediately as a medium of exchangeCorrect
Explanation
Liquidity falls as we move from M1 to M4 because broader measures add deposits that cannot be spent directly or must be converted first. M1 holds only currency and demand-type deposits, so it is the most liquid. Broader measures are larger in size but less liquid.
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