Which of the following measures would result in an increase in the money supply in the economy?
1. Purchase of

Question

Which of the following measures would result in an increase in the money supply in the economy?
1. Purchase of govt securities from the public by the central bank
2. Deposit of currency in commercial banks by the public
3. Borrowing by the govt. from the central bank
4. Sale of govt. secs. To the public by the central bank
Select the correct answer using the codes given below:

Accepted Answer

When the central bank purchases government securities from the public, it injects money into the economy, increasing the money supply. Similarly, when the government borrows from the central bank, it effectively prints money, leading to an expansion of the money supply. Conversely, deposits in commercial banks (2) represent a transfer of funds, not an increase in the total money supply itself, and the sale of securities by the central bank (4) withdraws money from circulation.