Question

1. what are the types of money supply?

2. what is the relationship between money supply and interest rate ?

Answer 1

Types of Money Supply

1. M0-Reserve Money

M0-Currency in circulation+Banker's Deposits with RBI+Other deposits with RBI

2 M1- Narrow Money

M1= currency with public+Demand deposits with the banking system+ Other deposits with RBI

3. M2= M1+Time liabilities portion of Savings Deposits with the banking system+ Certificates of Deposit issued by Banks+ Term Deposits of residents with a contractual maturity of up to and including one year with the Banking system(excluding CDs)

4 M3- Board Money

M3=M2+ Term Deposits of residents with a contractual maturity of over one year with the banking system+Call/Term borrowings from Non-depository' Financial Corporation by the banking system.

5.M4

M4=M3+ All deposits with post office savings banks

2. Relationship between money supply and interest rate

Inverse relationship as a larger money supply lowers market interest rates and vice versa.