Q.Which measure of money supply is known as 'broad money' and is most commonly used for monetary-policy purposes in India?

'Broad money' is the aggregate that adds time deposits to M1 while still stopping short of the least-liquid post-office deposits included only in M4.

The correct option is (c) M3.

M3 is defined as M1 (currency with the public + demand deposits with banks + other deposits with the RBI) plus time deposits with banks. It is called 'broad money' because it captures a wider slice of the public's total money holdings than M1 alone, while still being narrower than M4 (which additionally includes post-office savings-organisation deposits). Among all four RBI measures, M3 is the one most commonly referenced in monetary-policy discussion and in most economic reporting on 'the' money supply of India.

Why the other options are wrong: (a) M1 is narrow money, restricted to instantly-withdrawable components, and does not include time deposits at all. (b) M2 only adds post-office savings-bank deposits to M1 — a comparatively minor addition, not the standard 'broad money' aggregate. (d) M4 is broader still than M3 (it adds post-office savings-organisation deposits, excluding NSCs), but it is M3, not M4, that is conventionally called 'broad money' and used for policy purposes.

Students sometimes pick M4 by reasoning that 'broadest must mean broad money' — but the standard terminology reserves the specific label 'broad money' for M3, not the widest possible aggregate M4, which is used far less often in practice.