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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Answer: D. Money supply (M1) includes both currency with the public and demand deposits. Withdrawing cash just converts a demand deposit into currency, so the total stays the same at that moment.
Watch for: Students think money leaving the bank reduces money supply, but cash with the public is also money.
Why the other options are wrong
- A. Wrong because the drop in deposits is matched by a rise in currency with the public.
- B. Wrong because no new money is created by a withdrawal.
- C. Wrong because there is no multiplier effect from a withdrawal.
Source to check: NCERT Class 12 Introductory Macroeconomics, Chapter 3 (Money and Banking); RBI Handbook of Statistics, monetary aggregates
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.