Question
A borrower comes into the bank and pays off 10,000 Rupees of his loan. This was a cash payment by the borrower to the bank. What was the immediate effect on the nation’s money supply?
Answer: Option D
:
D
The money supply decreased by 10,000 Rupees. While the cash was in the borrower’s possession, it was part of the nation’s money supply. As a reserve in a bank, it is not included in the money supply.
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:
D
The money supply decreased by 10,000 Rupees. While the cash was in the borrower’s possession, it was part of the nation’s money supply. As a reserve in a bank, it is not included in the money supply.
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