ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The M1 money supply is composed of Federal Reserve notes-otherwise known as bills or paper money-and coins that are in circulation outside of the Federal Reserve Banks and the vaults of depository institutions. Paper money is the most significant component of a nation’s money supply.

Detailed explanation-2: -The paper component of the money supply is made up of Federal Reserve notes. Consist of coins and currency that depository institutions hold on their vaults, plus deposits with Federal Reserve district banks.

Detailed explanation-3: -The first paper money issued by the government were “demand notes” commonly referred to as “greenbacks.” In 1862, Congress retired the demand notes and began issuing United States notes, also called legal tender notes.

Detailed explanation-4: -Narrow money is also known as M1 and M2. Broad money means M3 and M4. The liquidity of these grades is decreasing. M1 is the most liquid and makes transactions the easiest, while M4 is the least liquid.

Detailed explanation-5: -Currency in circulation. Banker’s deposits with the NBI. Other deposits with the RBI. Demand deposits of banks.