Money Supply (M0 to M3) Explained
Money supply refers to the total stock of money in circulation in an economy, measured through monetary aggregates M0 to M3.
Money supply refers to the total stock of money in circulation in an economy, measured through monetary aggregates M0 to M3.
The aggregates
M0 is reserve money (currency in circulation plus bankers' deposits with the RBI). M1 (narrow money) is currency with the public plus demand deposits. M3 (broad money) adds time deposits and is the most commonly used measure.
Why it matters
Controlling money supply is central to monetary policy, as excess money growth can fuel inflation.
Why it matters for UPSC
The definitions of M0, M1 and M3 (narrow vs broad money) are frequently tested Economy facts.
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What is M3?
Broad money — narrow money (M1) plus time deposits with banks; the most commonly used measure of money supply.
What is M0?
Reserve money — currency in circulation plus bankers' deposits with the RBI.