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
Answer & explanation
Answer: (d) to leave it unchanged
Money supply does not change, because the ₹ 1,00,000 only moves from one part of money supply to another. Demand deposits fall by ₹ 1,00,000 and the currency you hold rises by the same amount.
- ✗ (a) Money supply counts currency held by the public as well as demand deposits. Your deposit falls by ₹ 1,00,000, but your cash in hand rises by ₹ 1,00,000, so the total is unchanged.
- ✗ (c) Cash leaving the bank reduces its reserves, so it cannot start a larger expansion of money. Any later effect would work through banks lending less, not through this withdrawal itself.
- ✓ (d) Narrow money is M1 = currency held by the public + demand deposits. A cash withdrawal only converts one component into the other, so M1 stays the same.
Remember · M1 = currency with the public + demand deposits. Converting a deposit into cash, or the reverse, leaves money supply unchanged.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter) · Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter)
Sources
- NCERT Class 12 · Introductory Macroeconomics, Chapter 3 “where, CU is currency (notes plus coins) held by the public and DD is net demand deposits held by commercial banks.”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 3 “The total stock of money in circulation among the public at a particular point of time is called money supply.”
Question and answer: UPSC's official GS Paper I (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·