A borrower comes into the bank and pays off 10,000 Rupees of his loan. This was a cash payment by the borrower to the bank. What was the immediate effect on the nation’s money supply?

Cannot be determined

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Remains constant

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Increases

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Decreases

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Solution

The correct option is D
Decreases

The money supply decreased by 10,000 Rupees. While the cash was in the borrower’s possession, it was part of the nation’s money supply. As a reserve in a bank, it is not included in the money supply.

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A borrower comes into the bank and pays off 10,000 Rupees of his loan. This was a cash payment by the borrower to the bank. What was the immediate effect on the nation’s money supply?

The correct option is D Decreases The money supply decreased by 10,000 Rupees. While the cash was in the borrower’s possession, it was part of the nation’s money supply. As a reserve in a bank, it is not included in the money supply.

The correct option is D
Decreases

The money supply decreased by 10,000 Rupees. While the cash was in the borrower’s possession, it was part of the nation’s money supply. As a reserve in a bank, it is not included in the money supply.