If you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on…
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
to reduce it by Rs. 1,00,000
to increase it by Rs. 1,00,000
to increase it by more than Rs. 1,00,000
to leave it unchanged
Solution
Money supply M = Currency with public (C) + Demand deposits (D). Withdrawing Rs. 1,00,000 reduces D by Rs. 1,00,000 and increases C by Rs. 1,00,000 — net change on aggregate money supply is zero. Answer: (d).