UPSC Previous Year Question | Prelims GS | 2020

If you withdraw Rs 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be

  1. to reduce it by Rs 1,00,000
  2. to increase it by Rs 1,00,000
  3. to increase it by more than Rs 1,00,000
  4. to leave it unchanged

Answer

Correct Answer

to leave it unchanged

Explanation

Money supply = currency with the public + demand deposits. Withdrawing cash lowers deposits by Rs 1 lakh and raises currency with the public by the same amount, so the total is unchanged.

Topics: components of money supply - currency with public and demand deposits, economy, money & banking, money supply