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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

,

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

(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:

(d)

Core Books/NCERT

Explanation

Without getting into the technicalities of M1, M2 etc, at a very basic level, we can express money supply as: M = C+D Now, taking out Rs 1 lakh from “D” would increase “C” with public. This simply means that “the immediate” effect would be “a no change in the aggregate money supply” in the economy. If we carry out the same analysis technically also using measures of money supply like M1, M2, M3 and M4, the result would be same. Therefore, the correct answer is (d).