Money supply means the total amount of money in an economy. The effective money supply consists mostly of currency and demand deposits.
RBI publishes figures for four alternative measures of money supply, viz, $M_1$,$M_2$,$M_3$ and $M_4$.
They are defined as, $M_1$ = CU + DD
Where, CU is Currency (notes plus coins) held by the public and DD is net Demand Deposits held by commercial banks. The word ‘net’ implies that only deposits of the public held by the banks are to be included in money supply. The inter bank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of money supply.
$M_2$ = $M_1$+ Savings deposits with post office savings banks
$M_3$ = $M_1$+ Net time deposits of commercial banks
$M_4$ = $M_3$ + Total deposits with post office savings organisations (excluding National Savings Certificates)
