Home General Knowledge GK SPECIAL TOPIC : MONETARY AGGREGATES IN INDIA
GK SPECIAL TOPIC : MONETARY AGGREGATES IN INDIA
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Friday, 18 July 2014 07:50

 


 


MONETARY AGGREGATES IN INDIA

The entire quantity of bills, coins, loans, credit and other liquid instruments in a country's economy is known as money supply.

Money supply is divided into multiple categories - M0, M1, M2 and M3 - according to the type and size of account in which the instrument is kept. The money supply is important to economists trying to understand how policies will affect interest rates and growth.

M0 = Currency in circulation + bankers deposits with the RBI + other deposits with RBI

M1 = Currency with the Public + Demand Deposits with the banking system + Demand Liabilities portion of Savings Deposits with the banking system + other deposits with the bank

M2 = M1 + Savings deposits with Post office savings banks.

M3 = M2 + Time deposits with the contractual maturity of over one year with the banking system + Call Borrowings from ‘Non- Depository’ Financial Corporations by the banking system

M3 is termed as broad money and M1 is known as narrow money.

Liquidity aggregates in India

Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

There are three measures of liquidity in India

L1 = M3 + all deposits with post office savings bank except NSC

L2 = L1 + term deposits with Term Lending Institutions and Refinancing Institutions (FIs) + term borrowing by FIs and Certificates of Deposits issued by FIs

Quarterly compilation

L3 = L2 + public deposits of non banking financial companies







 

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