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

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: (UPSC CSE 2020)

To reduce it by 1,00,000
To increase it by 1,00,000
To increase it by more than 1,00,000
To leave it unchanged

Answer: D

Explanation

The money supply is all the currency and other liquid instruments in a country’s economy on the date measured. The money supply roughly includes both cash and deposits that can be used almost as easily as cash. The various types of money in the money supply are generally classified as M0, M1, M2, and M3, according to the type and size of the account in which the instrument is kept. M1, for example, is also called narrow money and includes coins and notes that are in circulation and other money equivalents that can be converted easily to cash. M2 includes M1 and, in addition, short-term time deposits in banks and certain money market funds. M3 includes M2 in addition to long-term deposits so there will be no immediate effect on aggregate supply in the economy as it just denotes the transfer of money from one hand/account to another.