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:
✓ Correct answer: d) to leave it unchanged
ExplanationDemand deposit accounts consist of funds held in a bank account from which deposited funds can be withdrawn at any time while a term deposit account restricts access for a predetermined time(Fixed deposits accounts, Recurring depos- its accounts).Current accounts and savings accounts are demand deposits.Money = total currency with the public + demand deposits of the public with banks.When you withdraw Rs. 1,00,000 in cash from your demand deposit account, you’re simply changing the form of your money.You’re not changing the total amount of money in the economy.Before the withdrawal: You have Rs. 1,00,000 in your bank account, which is part of the money supply (specifically, it’s part of the deposit component of the money supply).After the withdrawal: You have Rs. 1,00,000 in cash.This cash is also part of the money supply (specifically, it’s part of the currency in circulation component).The money has just moved from one “pocket” of the money supply to another.The overall quantity of money remains the same.154
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