In an economy "aggregate monetary resources" are equal to the sum of:
(i) Central Bank notes in circulation
(ii) Coins and small coins in circulation
(iii) Time deposits with banks
(iv) Demand deposits with banks and other deposits with Central Bank

Question

In an economy "aggregate monetary resources" are equal to the sum of: 
(i) Central Bank notes in circulation 
(ii) Coins and small coins in circulation 
(iii) Time deposits with banks 
(iv) Demand deposits with banks and other deposits with Central Bank

Accepted Answer

The correct option is 4:

The term "Aggregate Monetary Resources" in an economy is generally synonymous with the broadest definition of money supply, often referred to as M3 or broad money, as defined by central banks like the Reserve Bank of India (RBI). This measure captures the total liquid resources available in the economy. It includes the most liquid components (narrow money) as well as less liquid, savings-oriented components (time deposits). Therefore, Aggregate Monetary Resources are the sum of: (i) Central Bank notes in circulation, (ii) Coins and small coins in circulation (these two comprise the currency held by the public), (iv) Demand deposits with banks and other deposits with the Central Bank (which constitute the core transaction money or M1), AND (iii) Time deposits with banks (fixed deposits and certificates of deposit), which represent the savings component of the money supply. Since the aggregate resources include both transaction balances and savings balances, all four listed components are necessary for a comprehensive measure.

The incorrect option is 1: Both (i) and (ii). This option only covers physical currency (notes and coins) held by the public, which is an extremely narrow measure, often called C (Currency). It completely excludes the substantial component of bank deposits, which are vital monetary resources.

The incorrect option is 2: Only (i), (ii) and (iii). This option mistakenly excludes (iv) Demand deposits, which are the most active and liquid form of transactional money in the banking system, and are always included in every standard definition of broad money supply.

The incorrect option is 3: Only (i), (ii) and (iv). This combination represents M1 (Narrow Money). While M1 includes the most liquid assets, it fails to capture the significant volume of savings held as Time deposits (iii) that contribute to the overall monetary base and resources of the economy, thus making it incomplete for "aggregate monetary resources."