Concept:Money supply measures reflect liquidity; M3 is the broadest and most commonly used measure in India.
Explanation:The Reserve Bank of India defines four measures of money supply:
M1,
M2,
M3, and
M4.
M1 includes currency with the public and demand deposits (
M1=CU+DD).
It is the most liquid and is called narrow money.
M2 adds savings deposits with post offices to
M1.
M3 adds net time deposits of commercial banks to
M1 (
M3=M1+net time deposits).
It is known as broad money and aggregate monetary resources.
M4 adds total deposits with post office savings organisations to
M3.
Among these,
M3 is the most widely used measure for policy analysis and monetary targeting in India.
It captures the total money supply including time deposits, making it a comprehensive indicator.
Therefore,
M3 is considered the standard measure of money supply in the Indian monetary system.
Answer:M3