Money Supply and Its Components

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What is the primary difference between the definitions of M2 and M3?

M3 includes savings deposits of post office savings banks, while M2 does not (correct)
M2 includes currency with the public, while M3 does not
M2 includes time deposits with the banking system, while M3 does not
M3 includes currency with the public, while M2 does not

What is excluded from the definition of 'public' in the context of money supply?

Local authorities and non-banking financial institutions
Foreign central banks and governments
Households and firms
The government and the banking system (correct)

What type of deposits are included in the definition of M1?

Demand deposits with the banking system (correct)
Money market fund shares and debt securities
Savings deposits and repurchase agreements
Demand deposits and time deposits

Which of the following is NOT included in the definition of broad money (M3)?

Deposits with an agreed maturity of up to five years (A) Signup and view all the answers

Which institution is included in the definition of 'banking system'?

All banks that accept demand deposits (B) Signup and view all the answers

What is the primary difference between demand deposits and time deposits?

Time deposits have a longer maturity period (B) Signup and view all the answers

What happens to excess reserves when banks expect an increase in deposit outflows?

They increase to provide more assurance against the possibility (C) Signup and view all the answers

What is the primary reason for the decline in excess reserves when expected deposit outflows decrease?

Banks no longer need to hold excess reserves as a precaution (B) Signup and view all the answers

What is the effect of banks converting deposits into currency on the creation of credit money?

It decreases the creation of credit money (D) Signup and view all the answers

What is the primary reason for the sharp deceleration in monetary growth during times of financial crises?

Banks become unwilling to lend to small and medium scale industries (A) Signup and view all the answers

What is the effect of a decline in expected deposit outflows on the monetary base?

It increases the monetary base (A) Signup and view all the answers

What is the primary reason for the variation in money supply over time?

The behaviour of commercial banks (C) Signup and view all the answers

What is the primary reason why the money multiplier and the deposit multiplier are not identical?

Banks maintain reserves at a level above the minimum required reserve. (A) Signup and view all the answers

What happens to excess reserves when banks are risk averse to lending?

They are parked under reverse repo. (B) Signup and view all the answers

What is the outcome when banks create money through credit?

An expansion of money not backed by money proper. (A) Signup and view all the answers

What is the relationship between the type of money created by commercial banks and that issued by the central bank?

They are identical. (B) Signup and view all the answers

What happened to the average deposit of funds in the overnight reverse repo window in India during the COVID pandemic?

It increased more than three times. (A) Signup and view all the answers

What is the primary reason why banks maintain reserves above the minimum required reserve?

To reduce their risk exposure. (C) Signup and view all the answers