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Which of the following measures would result in an increase in the money supply in the economy?  1. Purchase of government security from the public by the Central Bank 2. Deposit of currency by commercial banks by the public 3. Borrowing by the government from the Central Bank 4. Sale of the government securities to the public by the Central Bank

Which of the following measures would result in an increase in the money supply in the economy?  1. Purchase of government security from the public by the Central Bank 2. Deposit of currency by commercial banks by the public 3. Borrowing by the government from the Central Bank 4. Sale of the government securities to the public by the Central Bank Correct Answer 1 and 3

The correct answer is 1 and 3 only.

Key Points

  • When the RBI wants to increase the money supply in the economy, it purchases government securities from the market which led to the flow of more money in the market. Hence statement 1 is correct.
  • Deposit of currency in commercial banks by the public does not increase instead decreases the supply of money in the market. Hence statement 2 is not correct.
  • Borrowing by the government from the Central Bank led to the release of money to the Central Bank which eventually releases money in the market via loans etc. Hence statement 3 is correct.
  • The sale of government securities to the public by the Central Bank leads to reduce the money supply in the market. Hence statement 4 is not correct.

Related Questions

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Select the correct answer:
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S: Borrowing of a habitual nature prevents us from being industrious.
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The Proper sequence should be:
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