UPSC CSE Prelims
Question 88
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:
View correct answer and explanation
Correct answer: D
Correct Option: D (to leave it unchanged)
Explanation: Cash withdrawn from a demand deposit merely changes the form of money held by the public: demand deposits decrease by ₹1 lakh while currency with the public increases by ₹1 lakh.
Option-wise Analysis:
A. Incorrect - Deposits decline, but currency outside banks rises equally, so aggregate M1 does not fall.
B. Incorrect - This is a portfolio conversion, not a fresh net issue that raises M1.
C. Incorrect - No multiplier creates more than ₹1 lakh of money immediately through this withdrawal.
D. Correct - currency and demand deposits are both money components, so total money supply is unchanged.