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The correct answer is option 3 i.e. decreasing order of liquidity.
The money supply measures—M1, M2, M3, and M4—show that liquidity is declining in this order.
M1 consists of the assets that are most easily turned into cash: money that is in use and demand deposits, such as checking accounts.
M2 includes Savings accounts, money market accounts, and other near-money instruments that are marginally less liquid along with all of M1.
M3 includes Large time deposits, institutional money market funds, and other more liquid assets that are even less liquid are included in M3, is made up of all of M2 as well.
M4 is the least liquid measure since it consists of all of M3 plus additional assets like deposits from non-bank financial institutions.
As a result, the components get less liquid as we go from M1 to M4.