2023 · Q30
Which of the following action(s) by the Government would lead to contraction of money supply in the economy?
- 1Purchase of Treasury Bills by the Central Bank from public.
- 2Sale of Treasury Bills by the Central Bank to public.
- 3Sale of foreign exchange by the Central Bank.
- 4Purchase of foreign exchange by the Central Bank.
Select the correct answer using the codes given below.
General KnowledgeIndian Economy
- A1 and 4 only.
- B1 and 3 only
- C2 and 3 only
- D2 only
Explanation
Money supply contracts when the central bank absorbs rupees from the public: selling Treasury Bills to the public (2) and selling foreign exchange (3) both drain liquidity from the economy. Purchasing Treasury Bills (1) or foreign exchange (4) injects rupees and expands money supply. Hence 2 and 3 only.