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

The correct answer is D. Money supply here is the narrow measure M1, which equals currency with the public plus demand deposits with banks (M1 = C + DD). When you withdraw ₹1,00,000 from your demand deposit, two things happen at once. Currency with the public rises by ₹1,00,000, and demand deposits fall by the same amount. The sum is unchanged, so the immediate effect on money supply is nil.

Why the others fail: Option A ignores that the cash stays in the economy, just in a different form. Option B and C count only the new cash and forget the matching fall in deposits. This is double counting, and it is the same logic behind the M1 and M3 definitions in the RBI's money stock tables.

Core concept: money supply changes only when the central bank or commercial banks create or destroy deposits or currency. A shift between the two does not change the total. Mains link: this is why the monetary base (reserve money) and the money multiplier are analysed separately, and why bank credit, not cash withdrawals, drives money creation.

Trap: aspirants see "cash goes up" and pick B without checking the offsetting fall in demand deposits.