Marshall’s Equation
1. The Marshall equation is expressed as:
2. M = KPY the price level P = M/KY or the value of money = The reciprocal of price level is 1/P = KY/M the value of money (one rupee) = 2,000 units = (KY/M) = two units of goods, or Prices level P = (M/KY) = 1/2 = 0.50 paise per unit.
3. It is, therefore, clear that the value of money (its purchasing power) is found by dividing the total amount of goods, which the community wants to hold out of the total income (KY), by the amount of the supply of the money held by the public (M), and the price level (P) is found out by dividing the money supply (M) by the amount of goods which the community wants to hold (KY), as the price level is the opposite of the value of money.

P = \(\frac { MV+{ M }^{ 1 }{ V }^{ 1 } }{ T } \)
P = \(\frac { (1000\times 3)+(500\times 2) }{ 4000 } \)
= Rs. 1 Per good
Value of money (1/p) = 1
If the supply of money is double
P = \(\frac { (2000\times 3)+(1000\times 2) }{ 4000 } \)
= Rs. 2 Per good
Value of money (1/p) = 1/2
Thus, when money supply in doubled, i.e., increases from Rs. 4000 to 8000, the price level is doubled. i.e., from Re. 1 per good to Rs. 2 per good and the value of money is halved, i.e., from 1 to 1/2.
P = \(\frac { (500\times 3)+(250\times 2) }{ 4000 } \)
= Rs. 1 Per good
Value of money (1/p) = 1/2
Thus, when money supply is halved, i.e., decreases from Rs. 4000 to 2000, the price level is halved, i.e., from 1 to 1/2, and the value of money is doubled, i.e., from 1 to

(i) First, in an advanced and more important an evolving-financial system, it was not possible to define the tock of Money in an unambiguous way.
(ii) At least there were a number of different but equally valid definitions of the money supply and there was no strong reason for choosing one in preference to any other.
(iii) As we have seen, money can be defined either narrowly or broadly.
(iv) However, there are or have been within the some institutional context a number of different definitions of the money supply.
(v) The definitions change frequently as does the popularity of one measure over another which partly illustrates the difficulty in trying to pin down the concept.

Money Supply in India
Money supply is a stock variable. RBI publishes information for four alternative
measures of Money supply, namely M1, M2, M3 and M4.
M1 = Currency, coins and demand deposits
M2 = M1 + Savings deposits with post office savings banks
M3 = M2 + Time deposits of all commercial and cooperative banks
M4 = M3 + Total deposits with Post offices.
M1 and M2 are known as narrow money
M3 and M4 are known as broad money
Determinants of Money Supply
1. Currency Deposit Ratio (CDR); It is the ratio of money held by the public in currency to that they hold in bank deposits.
2. Reserve deposit Ratio (RDR); Reserve Money consists of two things (a) vault cash in banks and (b) deposits of commercial banks with RBI.
3. Cash Reserve Ratio (CRR); It is the fraction of the deposits the banks must keep with RBI.
4. Statutory Liquidity Ratio (SLR); It is the fraction of the total demand and time deposits of the commercial banks is the form of specified liquid assets.