Economy2012
Which of the following measures would result in an increase in the money supply in the economy?
- Purchase of government securities from the public by
- Deposit of currency in commercial banks by the public.
- Borrowing by the government from the Central Bank.
- Sale of government securities to the public by the
Central Bank. Select the correct answer using the codes given below:
Explanation
Correct Option: 1 and 3
The purchase of government securities by the Central Bank from the public (Option 1) injects liquidity into the economy, as it increases the reserves of commercial banks, allowing them to lend more, thereby enhancing the money supply. Similarly, when the government borrows from the Central Bank (Option 3), it also increases the money supply by creating new money for government expenditures. In contrast, depositing currency in commercial banks (Option 2) does not change the overall money supply but only shifts it from one form to another, while selling government securities (Option 4) withdraws money from the economy, decreasing the money supply.