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 :

The money supply in an economy increases when the Central Bank injects liquidity into the system. Purchase of government securities (Open Market Operations) by the Central Bank involves paying money to the public or banks, thereby increasing the total reserves and money supply [5]. Similarly, borrowing by the government from the Central Bank (debt monetization) results in the creation of new money as the bank credits the government's account or provides funds to finance public spending [4]. Conversely, the sale of securities by the Central Bank withdraws liquidity from the system, reducing the money supply [2]. A deposit of currency in commercial banks by the public merely changes the composition of the money supply (from currency to demand deposits) and does not immediately increase the total money supply, although it may later facilitate credit creation through the money multiplier [3].

Sources

1. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 63
2. [4] https://en.wikipedia.org/wiki/Debt_monetization
3. [5] https://www.investopedia.com/articles/investing/053115/how-central-banks-control-supply-money.asp
4. [1] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > 3.4 POLICY TOOLS TO CONTROL MONEY SUPPLY > p. 42
5. [3] https://www.elibrary.imf.org/display/book/9781557756282/C05.xml