2020 GS Paper I, all questions
UPSC Prelims 2020 · GS Paper I
Question 50: Economy and Social Development
If you withdraw ₹ 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be
ato reduce it by ₹ 1,00,000
bto increase it by ₹ 1,00,000
cto increase it by more than ₹ 1,00,000
dto leave it unchanged
AnswerUPSC’s answer is (d).
Narrow money (M1) is currency with the public plus demand deposits with banks plus other deposits with the RBI. Withdrawing ₹1,00,000 from a demand deposit lowers demand deposits by that amount and raises currency with the public by the same amount, so M1 does not change. Cash held in bank vaults is not counted in the money supply.
Why each option is right or wrong
- (a) Wrong: deposits fall, but currency with the public rises by the same amount.
- (b) Wrong: there is no net addition to money.
- (c) Wrong: a withdrawal does not multiply; the multiplier works on new reserves and lending.
- (d) Right: one form of money is swapped for another, so the total is unchanged.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2020, General Studies Paper I, Series A. The paper on upsc.gov.in.