Question

Which of the following measures would result in an increase in the money supply in the economy?
1. Purchase of government securities from the public by the Central Bank
2. Deposit of currency in commercial banks by the public
3. Borrowing by the government from the Central Bank
4. Sale of government securities to the public by the Central Bank

Select the correct answer using the codes given below :

• A. 1 only
• B. 2 and 4
• C. 1 and 3
• D. 2,3 and 4

Answer 1

The correct option is B 2 and 4

Purchase of government securities from the public by the Central Bank leads to more money in the hands of the public. Borrowing by the government from the Central Bank will increase the money supply in the economy, because it will be spent by the government on public. Example Direct benefit transfer Subsidies etc. The other two options absorb money from the economy.