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If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be
- a)To reduce in by Rs. 1,00,000
- b)To leave it unchanged
- c)To increase it by more than Rs. 1,00,000
- d)To increase it by Rs. 1,00,000
Correct answer is option 'B'. Can you explain this answer?
Verified Answer
If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account a...
Money Supply:
- The total stock of money in circulation among the public at a particular point of time is called money supply.
- It needs to be noted that total stock of money is different from total supply of money.
- Supply of money is only that part of total stock of money which is held by the public at a particular point of time.
- The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets.
- RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4.
- M1 = CU + DD
- M2 = M1 + Savings deposits with Post Office savings banks
- M3 = M1 + Net time deposits of commercial banks
- M4 = M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates)
- CU is currency (notes plus coins) held by the public and DD is net demand deposits held by commercial banks.
- M1 and M2 are known as narrow money. M3 and M4 are known as broad money.
- These gradations are in decreasing order of liquidity.
- M1 is most liquid and easiest for transactions whereas M4 is least liquid of all.
- M3 is the most commonly used measure of money supply. It is also known as aggregate monetary resources.
- It will increase when you withdraw 1 Lacs. Because currency supply will increase by 100000.
Most Upvoted Answer
If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account a...
Effect of withdrawing cash on aggregate money supply
When a person withdraws Rs. 1,00,000 in cash from their Demand Deposit Account at a bank, it may seem like the aggregate money supply in the economy would decrease by that same amount. However, this is not entirely accurate. The immediate effect on aggregate money supply in the economy will be:
Unchanged
This is because the money that is withdrawn from the bank's Demand Deposit Account is still a part of the money supply in the economy. The only difference is that it has been converted from a demand deposit to cash. Therefore, the money supply remains unchanged.
Factors affecting aggregate money supply
There are various factors that affect the aggregate money supply in the economy, including:
1. Reserve requirements: The reserve requirements set by the central bank determines how much money banks can lend out and how much they need to keep in reserve. This affects the overall money supply in the economy.
2. Monetary policy: The central bank's monetary policy, including interest rates and open market operations, can also affect the money supply in the economy.
3. Fiscal policy: Government spending and taxation policies can also impact the money supply in the economy.
Conclusion
While withdrawing cash from a Demand Deposit Account may seem like it would decrease the aggregate money supply in the economy, it actually has no immediate effect on it. Factors such as reserve requirements, monetary policy, and fiscal policy have a greater impact on the overall money supply in the economy.
When a person withdraws Rs. 1,00,000 in cash from their Demand Deposit Account at a bank, it may seem like the aggregate money supply in the economy would decrease by that same amount. However, this is not entirely accurate. The immediate effect on aggregate money supply in the economy will be:
Unchanged
This is because the money that is withdrawn from the bank's Demand Deposit Account is still a part of the money supply in the economy. The only difference is that it has been converted from a demand deposit to cash. Therefore, the money supply remains unchanged.
Factors affecting aggregate money supply
There are various factors that affect the aggregate money supply in the economy, including:
1. Reserve requirements: The reserve requirements set by the central bank determines how much money banks can lend out and how much they need to keep in reserve. This affects the overall money supply in the economy.
2. Monetary policy: The central bank's monetary policy, including interest rates and open market operations, can also affect the money supply in the economy.
3. Fiscal policy: Government spending and taxation policies can also impact the money supply in the economy.
Conclusion
While withdrawing cash from a Demand Deposit Account may seem like it would decrease the aggregate money supply in the economy, it actually has no immediate effect on it. Factors such as reserve requirements, monetary policy, and fiscal policy have a greater impact on the overall money supply in the economy.
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If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account a...
D
because of word immediate hence their will be no change in supply
because of word immediate hence their will be no change in supply
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If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer?.
If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer?.
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If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer?, a detailed solution for If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer? has been provided alongside types of If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice If you withdraw Rs. 1,00,000 in cash from you Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will bea)To reduce in by Rs. 1,00,000b)To leave it unchangedc)To increase it by more than Rs. 1,00,000d)To increase it by Rs. 1,00,000Correct answer is option 'B'. Can you explain this answer? tests, examples and also practice UPSC tests.
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