A
to reduce it by Rs. 1,00,000
B
to increase it by Rs. 1,00,000
C
to increase it by more than Rs. 1,00,000
D
to leave it unchanged
Correct answer: (d) to leave it unchanged
Explanation
- A
to reduce it by Rs. 1,00,000
Reduce M3 by ₹1 lakh. Currency in hand is still money.
- B
to increase it by Rs. 1,00,000
Increase by ₹1 lakh. Double-counts; deposits fall as cash rises.
- C
to increase it by more than Rs. 1,00,000
Increase by more. Multiplier talk is not the immediate effect.
- D
to leave it unchanged
Leave it unchanged. Demand deposits fall; currency with the public rises by the same amount. Immediate M3 is the same.
Summary. Official key is (d). Withdrawing cash from a demand deposit swaps one component of money supply for another. Immediately, aggregate money supply is unchanged.
Same topic · past papers
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