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Which of the following measures would result in an increase in the money supply in the economy

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Which of the following measures would result in an increase in the money supply in the economy?
1. Purchase of government securities from the public by the Central Bank
2. Deposit of currency in commercial banks by the public
3. Borrowing by the government from the Central Bank
4. Sale of government securities to the public by the Central Bank

(a)

1 only

(b)

2 and 4 only

(c)

1 and 3 only

(d)

2, 3 and 4 only

Answer:

(c)

Core Books/NCERT

Explanation

An increase in the money supply in the economy can occur through various measures taken by the Central Bank. When the Central Bank purchases government securities from the public, it injects money into the economy. Similarly, when the government borrows money from the Central Bank, it also increases the money supply. However, deposits of currency in banks and the sale of government securities to the public tend to reduce the money supply. Therefore, the correct answer is (c) 1 and 3 only.