gs1medium
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
- A.to reduce it by Rs. 1,00,000
- B.to increase it by Rs. 1,00,000
- C.to increase it by more than Rs. 1,00,000
- D.to leave it unchanged
▶ Answer & Explanation
Correct answer: D. to leave it unchanged
Aggregate money supply, particularly measures like M1 and M3, includes currency held by the public and demand deposits in banks. When cash is withdrawn from a demand deposit account, the amount of currency held by the public increases, but the demand deposit component of the money supply decreases by the same amount. Therefore, the overall aggregate money supply remains unchanged.
Source: UPSC gs1 2020