Question

How demonetization effect the economy in terms of national income?

Answer 1

Dear Student,

The Indian government had on 8 November 2016 abruptly withdrawn currency notes of ₹ 500 and ₹ 1000 denominations. The sudden decision had a two-fold impact on the Indian economy: an aggregate demand shock by reducing the supply of money, and, an aggregate supply shock by constraining the availability of cash as a critical input for specified economic activities, such as the purchase of inputs in the agriculture sector.
The Economic Survey for 2016-17 estimated the loss in economic output arising from demonetization to have been anything between a quarter of a percentage point to one percentage point of lost growth. India’s gross domestic product (GDP) grew 6.8% in the December quarter of 2016, down from 7.6% in the trailing three months. In the subsequent quarter, it declined to 6.1%.
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Regards.