Supply of Money

Dr. Shivani Mohan

Assistant Professor of Economics
Chanakya National Law University, Patna
 Components of Money
• Stock Concept
• with public (excluding banks and govrnment)
• Whole spectrum of liquidity in the assets portfolio of an individual
1. Currency
2. Demand Deposits with the commercial banks
3. Time deposits
4. Financial assets with non-banking financial intermediaries
5. Bills (treasury and exchange)
6. Bonds and equities
 Importance of Money Supply
• Economic Acceleration
• Price stability
• To stimulate investment
• Steady economic growth
 MS and its Measurement
1. Currency with the public
A. Currency notes in circulation issued by the RBI
rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=50923

B. Number of Rupees notes and Coins in Circulation

2. Demand Deposits with the banks

(s/a deposit, Current account deposit and Time Deposit)
 Determinants of Money Supply
• Required ratio
• Bank reserves
• Public desire to hold currency and deposits
• High Powered Money
 Measures of Money Supply
• M1= C+DD+OD

• M2= M1+ Saving deposits with the post office saving banks

• M3= MI + Time Deposits with the banks (Aggregate Monetary Resources)

• M4= M3 +Total Deposits with Post Office Saving Organisations

 High Powered Money(H)
• Present practice to explain money supply =Monetary base or High Powered
Money
• H=Sum of Commercial Bank Reserves+ Currency held by the Public
• Leads to expansion of bank deposits
• Creation of money supply
 MS in India
• Since 1977 RBI publishes all measures of MS (M1, M2, M3, M4)
• MS affects Liquidity , portfolio readjustment
Thank you!