ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Broad money (M3) includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares/units and debt securities up to two years. M3 is measured as a seasonally adjusted index based on 2015=100.

Detailed explanation-2: -M3 is broad money. M3 = M1 + Time deposits with the banking system. M2 = M1 + Savings deposits of post office savings banks. M1 = Currency with public + Demand deposits with the Banking system (savings account, current account).

Detailed explanation-3: -Besides all the components of M1, it includes net time deposits (or fixed deposits or term deposits) of the people with the commercial banks. Therefore, M3 is also called broad money.

Detailed explanation-4: -M1 includes coins and bills in circulation plus deposits. 2. M2 includes the items in M1, plus certificates of deposit. 3. M3 includes the items in M2, plus savings and deposits at financial institutions and post offices.

Detailed explanation-5: -The M3 classification is the broadest measure of an economy’s money supply. It emphasizes money as a store-of-value more so than as a medium of exchange, hence the inclusion of less-liquid assets in M3.