Question

Discuss the immediate effect on consumption expenditure in the economy due to demonetisation.

Answer 1

Demonetisation is undertaken to eliminate the validity of currency in circulation in a very short period of time and replace the same with new currency notes/coins.
Demonetisation led to cash crunch and fall in the supply of money. The liquidity in the hands of the people, in monetary terms, reduced and they struggled to pay for basic goods and services. The fall in consumption expenditure is an immediate effect of demonetisation and is likely to sustain until enough new currency gets circulated in the market to appropriately replace the old currency.