Economy Basics for UPSC Ep.02: Money Supply Measures M0-M4, Multiplier, Liquidity Preference Theory

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Timestamps
0:00 Introduction & Snow White
0:45 Why Not Deposit All Money in Bank?
1:22 Three Motives for Holding Cash
1:42 Liquidity Preference Theory
2:15 Money Multiplier Story Begins
2:43 Economy Pillars Overview
3:55 Previous Lecture Reminder
4:20 Free PPT Download
4:48 Lecture Objectives
5:08 NCERTRationalization
6:47 Bank Assets vs Liabilities
7:48 Public Currency & Bank Deposits
8:08 UPSC 2019 MCQ Solved
8:42 Demand vs Time Deposits
9:39 Liquidity Concept with Examples
10:39 Advanced Topics Teaser
11:15 Unacademy Subscription
12:49 Fiscal vs Monetary Policy
13:59 Why Measure Money Supply?
14:44 Money Supply Indicators (M0–M4)
15:39 M1 Formula (Narrow Money)
16:28 M3 Formula (Broad Money)
17:25 Liquidity in Money Supply
17:45 Money Multiplier Effect
18:21 Case Study-Zero Deposits
19:31 Case Study-Full Deposit
21:17 Double Counting Explained
21:38 Multiplier Calculation
22:24 CRR Introduction & Role
23:23 Case Study with 10% CRR
24:21 Updated Multiplier
24:47 Inverse Relation of CRR
26:10 Additional Factors Affecting
27:44 Summary of Multiplier Factors
28:01 UPSC MCQ Withdrawal
29:28 Mock Test UAIPMT
30:12 UPSC PYQ on Multiplier
31:21 PYQ Repeat Pattern
31:44 M0 High-Powered Money
32:59 M0 Formula Breakdown
34:20 Currency in Circulation
35:16 Bankers' Deposits with RBI
36:35 Other Deposits with RBI
37:29 M0 Creation-Assets
38:25 RBI Act & FRBM Constraints
42:27 Complete Summary Slide
43:45 Next Lecture Preview
44:46 Free Economy Win26 Series

In this comprehensive video lecture, renowned UPSC Educator and Economy Subject Expert Dr. Mrunal Patel delves into the fundamental concepts of macroeconomics, focusing on money supply and related theories. This session is part of the Economy Basics series, designed specifically for job aspirants in India preparing for competitive exams such as UPSC Civil Services, SSC-CGL, State Public Service Commissions (State PSC), Banking exams like IBPS and RBI, CAPF, CDS, ACIO, APFC, and more. Dr. Patel breaks down complex topics into simple, exam-oriented explanations, drawing from NCERT textbooks and previous UPSC questions to ensure you build a strong foundation.

The lecture begins with an engaging story using characters like Snow White to illustrate why individuals don't deposit all their money in banks, retaining some cash for transactions, precautions, and speculation. This leads into John Maynard Keynes' Liquidity Preference Theory, a key concept from classical macroeconomics that's frequently tested in exams. Dr. Patel emphasizes its relevance to NCERT Class 12 Economics, urging students to focus on conceptual understanding rather than rote memorization, as UPSC questions post-2011 CSAT syllabus often test application over verbatim recall.

Moving forward, Dr. Patel explains the asset-liability structure of banks. Using examples like loans to Vijay Mallya, he clarifies how loans are assets for banks (generating interest) while deposits are liabilities (to be returned). He highlights non-performing assets (NPAs) and their implications, tying it back to real-world banking scenarios. A 2019 UPSC question is solved live to demonstrate how deposits aren't assets for banks, reinforcing the point.

Next, the types of bank deposits are covered: demand deposits (current and savings accounts) offering low interest but high liquidity, versus time deposits (fixed deposits) with higher interest but penalties for premature withdrawal. Liquidity is defined as the ease of converting assets to cash, with examples like gold versus real estate. Dr. Patel assigns liquidity ratings to money supply components, preparing viewers for advanced topics.

The core of the lecture is on money supply indicators. Starting with M1 (narrow money: currency with public + demand deposits), he progresses to M3 (broad money: M1 + time deposits), explaining formulas based on NCERT. He warns that while economic surveys and RBI websites may use more complex versions, NCERT-level understanding suffices for prelims. Post-office savings are briefly mentioned for M4, but the focus remains on basics.

Alternative Titles:
1. UPSC Economy Pillar 1B: Understanding Money Supply M0-M4, Keynes' Theory & Banking Concepts
2. Money Supply Indicators, Bank Deposits & CRR: Essential Economics for Competitive Exams | Dr. Mrunal Patel
3. Liquidity Preference Theory, Money Multiplier & RBI Policies: UPSC Prep Lecture by Mrunal Patel