Money Supply and Its Measures

Money supply is the total stock of money held by the public — households and firms — at a given point in time. It excludes money held by the government for its own use and money held by banks as reserves, since that money is not available for ordinary spending. Money supply is therefore a stock concept, measured at a point in time, unlike national income, which is a flow measured over a period.

The Reserve Bank of India publishes four monetary aggregates, denoted $M_1$ through $M_4$, arranged from the most liquid components to the least liquid:

$M_1$ is called narrow money — it consists only of assets that can be spent immediately, without notice or penalty. $M_3$ is called broad money and is the aggregate most widely used for monetary policy analysis in India, since it additionally captures money parked in time deposits — not instantly spendable, but still real purchasing power that can be withdrawn (usually with some loss of interest) when needed. …