UPSC Setu Logo
Economy2020
If you withdraw Rs. 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:

Explanation

When you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account, the total amount of money in the economy remains unchanged because money supply includes both cash and demand deposits. The withdrawal simply transforms demand deposits into physical currency; thus, while the composition of money does change, the aggregate money supply, defined as the total of both cash in circulation and deposits in banks, remains constant. This concept is fundamental in understanding the functions of money and banking in economics, as it underscores the distinction between liquidity in various forms without affecting the total monetary base.

New here?