Money may be classified in to two types. They are:

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  1. Narrow Money
  2. Broad Money

 

  1. Narrow Money: Narrow money represents M1 and M2. that is, narrow money represents M1 which comprises coins and currency notes in circulation, demand deposits with banks withdrawable by cheques and other deposits with the Reserve Bank of India, and M2, which comprises coins and currency notes in circulation, demand deposits with banks withdrawable by cheques.
  2. Broad Money: With the narrow money, it the fixed deposits or time deposits are included, the resulting sum is called broad money. The Reserve Bank of India designated broad money as M3 .
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