Which of the following measures would result in an increase in the money supply in the economy? 1. Purchase of government securities from the public by the Central Bank 2. Deposit of currency in commercial banks by the public 3. Borrowing by the government from the Central Bank 4. Sale of government securities to the public by the Central Bank Select the correct answer using the codes given below:

QUESTION

Medium

Economy

Prelims 2012

Which of the following measures would result in an increase in the money supply in the economy?

Select the correct answer using the codes given below:

Select an option to attempt

Explanation

Purchase of government securities from the public by the Central Bank This injects money into the economy. When the Central Bank buys securities, it pays for them with newly created money, effectively increasing the money supply.
Deposit of currency in commercial banks by the public This doesn't directly increase the money supply. While the public has less cash on hand, the banks now have more reserves. However, the total amount of money in circulation remains the same.
Borrowing by the government from the Central Bank This can increase the money supply. If the Central Bank creates new money to lend to the government, it injects new money into the system.
Sale of government securities to the public by the Central Bank This decreases the money supply. When the Central Bank sells securities, it absorbs money from the public in exchange for the securities, taking money out of circulation.

Therefore, statements 1 and 3 are correct.

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