Question

After Demonetisation, people deposited the old currency into their bank accounts. It will decrease the money supply In the economy. Defend or refute.

Answer 1

The given statement is refuted. Deposit of old currency by the people reduces the 'Currency held by Public' (a component of Money Supply) and increases the Wet Demand Deposits held by Commercial Banks' (another component of Money Supply) by the same amount. So, there will be no change in the money supply in the economy. However, Money Supply will decrease permanently to the extent of black money, which does not re-enter the system.