Which of the following measures of money supply is most liquid?

Correct option is D

The correct answer is (d) M1.
· M1 is considered the most liquid form of money supply as it includes currency in circulation and demand deposits, which are readily available for transactions.
· It consists of:
· Currency with the public (coins and notes in circulation).
· Demand deposits in commercial banks (such as checking accounts).
· Other deposits with the Reserve Bank of India (RBI), which are highly liquid.
· Liquidity refers to how quickly an asset can be converted into cash without affecting its market value, and M1 is immediately accessible for spending.
Other measures of money supply:
· M2 includes M1 along with savings deposits with post office savings banks, thus slightly less liquid than M1.
· M3 is broader and includes M1 plus time deposits (fixed deposits) with banks, making it less liquid.
· M4 adds all deposits, including post office deposits, and is the least liquid among these.