UPSC Prelims 2020·GS1·economy·money and banking

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

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Last updated 23 May 2026, 3:31 pm IST
  1. Ato reduce it by ₹ 1,00,000
  2. Bto increase it by ₹ 1,00,000
  3. Cto increase it by more than ₹ 1,00,000
  4. Dto leave it unchangedCorrect

Explanation

When you withdraw cash (currency in circulation) from your Demand Deposit Account at your bank, the immediate effect on the aggregate money supply in the economy is **to leave it unchanged**. Here's why: Money supply (typically measured as M1 or M3) includes both currency held by the public (cash) and demand deposits (money held in checking or savings accounts that can be readily accessed). When you withdraw cash: Your demand deposit balance decreases by ₹ 1,00,000. The amount of currency in circulation increases by ₹ 1,00,000. Essentially, you are converting one component of the money supply (demand deposit) into another component (currency). The total amount of money available in the economy, as defined by the aggregate money supply measures, does not change as a result of this transaction. It's a change in the composition of money, not its total quantity.
economy: If you withdraw ₹ 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate mone
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