Civil Services Examination · Question 50

If you withdraw ₹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 ₹1,00,000
to increase it by ₹1,00,000
to increase it by more than ₹1,00,000
to leave it unchanged

Show answer & explanation

Answer: (D) to leave it unchanged

Explanation

M1/M3 include both currency with the public and demand deposits; withdrawal merely converts one component into another, leaving money supply unchanged.