Consider the following liquid assets:
- 1.Demand deposits with the banks
- 2.Time deposits with the banks
- 3.Savings deposits with the banks
- 4.Currency
The correct sequence of these assets in the decreasing order of liquidity is
Answer & explanation
Answer: (d) 4–1–3–2
Liquidity means how quickly and freely an asset can be used to pay. Currency is already cash, so it is the most liquid. Demand deposits can be withdrawn at any time. Savings deposits come next because they limit the number and amount of withdrawals. Time deposits are locked for a fixed period, so they are the least liquid. The order is 4–1–3–2.
- ✓ 4. Currency (notes and coins) is legal tender and settles any payment directly. It is the most liquid asset and comes first.
- ✓ 1. RBI defines a demand deposit as one that is "withdrawable on demand". Cheques drawn on it are used to settle payments, so it ranks just below currency.
- ✓ 3. A savings deposit is a form of demand deposit, but it is subject to limits on the number and amount of withdrawals in a period. It is therefore less liquid than a current-account type demand deposit.
- ✓ 2. A term deposit is received for a fixed period, so the money is not freely available before maturity. It is the least liquid of the four.
- ✗ a/b/c Option (a) puts demand deposits above currency. Option (b) puts time deposits above demand deposits. Option (c) reverses the whole order. Only 4–1–3–2 matches the order of liquidity.
Remember · Order of liquidity: currency > demand (current) deposits > savings deposits > time deposits. This matches M1 (currency + demand deposits) being more liquid than M3 (which adds time deposits).
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 3 “These measures are in decreasing order of liquidity. M1 is most liquid and easiest for transactions whereas M4 is least liquid of all.”
- RBI Master Direction – Interest Rate on Deposits (definitions) ↗ ““Demand deposit” means a deposit received by the bank, which is withdrawable on demand; … “Term deposit” means a interest bearing deposit received by the bank for a fixed period”
Question: UPSC Civil Services (Preliminary) 2013, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). ·
