Q.An economy reports the following figures for a given date: Currency with the public = ₹4,000 crore; Demand deposits with banks = ₹2,500 crore; Other deposits with the RBI = ₹100 crore; Time deposits with banks = ₹6,000 crore. Calculate M1 and M3.

M1 adds only the most liquid components of money supply; M3 additionally brings in time deposits.

Step 1 — Compute M1.

Step 2 — Compute M3.

Cross-check by adding the components in a different order. Grouping the two 'immediately spendable' items first: (4000 + 2500) = 6500, plus the smaller 'other deposits' figure of 100, gives 6600 for M1 — the same total regardless of the order the components are added in, since addition is commutative. Adding time deposits (6000) to this confirmed M1 again gives 12,600 for M3, matching Step 2.

Adding time deposits into M1 (which would wrongly conflate narrow and broad money), or forgetting the small 'other deposits with the RBI' component altogether — even though it is usually the smallest figure, the formula for M1 explicitly includes it.