If you withdraw ₹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
[UPSC Civil Services Exam – 2020 Prelims]
(a) to reduce it by ₹1,00,000
(b) to increase it by ₹1,00,000
(c) to increase it by more than ₹1,00,000
(d) to leave it unchanged
- Money supply consists of total currency circulating in the public plus the demand deposits of the public with banks.
- Hence, we can write Money Supply = Currency with public + Currency in the bank.
- If we look at the equation; when you draw cash from the bank, it goes to the currency in hand but it does not change the value of the money supply.
- Hence, there will be no change in the aggregate money supply.