Money Multiplier (types Of Money)

• It is the ratio of broad money (M3) divided by Reserve Money (M0)
• Therefore, Broad money (M3) = Reserve Money (M0) x money multiplier
• In other words, when Reserve money increases, Broad money will also increase.

1. Reserve Money (M0) = Currency in circulation + Bankers’ Deposits with the RBI + ‘Other’ deposits with the RBI.
2. Narrow Money (M1) = Currency with the Public + Demand Deposits with the Banking System + ‘Other’ deposits with the RBI.
3. M2 = M1 + Savings Deposits of Postoffice Savings Banks.
4. Broad Money (M3) = M1 + Time Deposits with the Banking System.
5. M4 = M3 + All deposits with Post Office Savings Banks (excluding National Savings Certificates).

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