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

UPSC Prelims & Mains Questions

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

Correct Answer : to leave it unchanged

Note :

At a very basic level, aggregate money supply (say M) refers to the “total stock of money available for use” in the economy. So, two absolute basic components of money supply are :

1. Currency with public (C) : This consists of currency notes in circulation issued by RBI, rupee notes & coins in circulations, as well as small coins in circulation.

2. Demand Deposits of public with Banks (also called as deposit money) (D): These deposits can be withdrawn by public at any point depending upon need.

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.

Year : 2020

Category : General Studies

Recently Updated in UPSC Questions

With reference to 'IFC Masala Bonds', sometimes seen in the news, which of the statements given below is/ are correct? (2016)

1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.

2. They are rupee-denominated bonds and are a source of debt financing for the public and private sector.

Select the correct answer using the code given below:

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Correct Answer : Option (C) - Both 1 and 2

Note :

* The World Bank Group, which is a vital source of financial and technical assistance to developing countries, consists of five distinct yet complementary organizations, viz.,

* International Bank for Reconstruction and Development (IBRD),

* International Development Association (IDA),

* International Finance Corporation (IFC), hence, statement 1 is correct.

* Multilateral Investment Guarantee Agency (MIGA),

* International Centre for Settlement of Investment Disputes (ICSID).

* Masala Bonds are rupee-denominated borrowings issued by Indian entities in overseas markets. Masala means ‘spices’ and the term was used by International Finance Corporation (IFC) to popularise the culture and cuisine of India on foreign platforms. The objective of Masala Bonds is to fund infrastructure projects in India, fuel internal growth via borrowings and internationalize the Indian currency. Hence, statement 2 is correct.

Year : 2022

Category : General Studies

Consider the following statements:

1. The Accelerated Irrigation Benefits Programme was launched during 1996-97 to provide loan assistance to poor farmers.

2. The Command Area Development Programme was launched in 1974-75 for the development of water-use efficiency,

Which of the statements given above is/ are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Correct Answer : Option (B) - 2 only

Note :

The Accelerated Irrigation Benefits Programme (AIBP) was launched in 1996 as a central assistance programme, with the aim to accelerate creation of irrigation potential.

The Command Area Development (CAD) programme was initiated in 1974-75 with a view to bridging the gap between the potential created and its utilisation and optimising agricultural productivity through better management of land and water use in the command areas served by selected major and medium irrigation projects.

Year : 2015

Category : General Studies