Q10. "Demonetization" of Rs. 500 and Rs. 1000 currency notes has resulted in which of the following?
Q10. "Demonetization" of Rs. 500 and Rs. 1000 currency notes has resulted in which of the following?
The correct option is D d) All of the above
Liquidity is measured by effective cash in circulation. The demonetization has led to liquidity crunch as the old Rs. 1000 and Rs. 500 notes could not be used for transaction purpose and there were restrictions on withdrawal of new currency notes.
In the banking system, demonetization has led to an increase in liquidity (here liquidity means deposits with the banks) which has resulted in decreased market interest rates.
Economists define money supply as broad measures that encompass both cash and bank deposits because these are very close substitutes. A key aspect of the November 8 demonetization, however, is that the convertibility between cash and bank deposits was impeded. Cash could not be easily deposited into bank accounts, while withdrawals were subject to strict limits. So we can say that demonetization has led to a reduction in money supply.
d) All of the above
Liquidity is measured by effective cash in circulation. The demonetization has led to liquidity crunch as the old Rs. 1000 and Rs. 500 notes could not be used for transaction purpose and there were restrictions on withdrawal of new currency notes.
In the banking system, demonetization has led to an increase in liquidity (here liquidity means deposits with the banks) which has resulted in decreased market interest rates.
Economists define money supply as broad measures that encompass both cash and bank deposits because these are very close substitutes. A key aspect of the November 8 demonetization, however, is that the convertibility between cash and bank deposits was impeded. Cash could not be easily deposited into bank accounts, while withdrawals were subject to strict limits. So we can say that demonetization has led to a reduction in money supply.
