{"id":86427,"date":"2025-06-01T03:46:46","date_gmt":"2025-06-01T03:46:46","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=86427"},"modified":"2025-06-01T03:46:46","modified_gmt":"2025-06-01T03:46:46","slug":"which-of-the-following-actions-by-the-government-would-lead-to-contr","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/","title":{"rendered":"Which of the following action(s) by the Government would lead to contr"},"content":{"rendered":"<p>Which of the following action(s) by the Government would lead to contraction of money supply in the economy ?<\/p>\n<ul>\n<li>1. Purchase of Treasury Bills by the central bank from public<\/li>\n<li>2. Sale of Treasury Bills by the central bank to public<\/li>\n<li>3. Sale of foreign exchange by the central bank<\/li>\n<li>4. Purchase of foreign exchange by the central bank<\/li>\n<\/ul>\n<p>Select the correct answer using the code given below :<\/p>\n<p>[amp_mcq option1=&#8221;1 and 4 only&#8221; option2=&#8221;1 and 3 only&#8221; option3=&#8221;2 and 3 only&#8221; option4=&#8221;2 only&#8221; correct=&#8221;option3&#8243;]<\/p>\n<div class=\"psc-box-pyq-exam-year-detail\">\n<div class=\"pyq-exam\">\n<div class=\"psc-heading\">This question was previously asked in<\/div>\n<div class=\"psc-title line-ellipsis\">UPSC CDS-2 &#8211; 2023<\/div>\n<\/div>\n<div class=\"pyq-exam-psc-buttons\"><a href=\"\/pyq\/pyq-upsc-cds-2-2023.pdf\" target=\"_blank\" class=\"psc-pdf-button\" rel=\"noopener\">Download PDF<\/a><a href=\"\/pyq-upsc-cds-2-2023\" target=\"_blank\" class=\"psc-attempt-button\" rel=\"noopener\">Attempt Online<\/a><\/div>\n<\/div>\n<section id=\"pyq-correct-answer\">To contract the money supply in the economy, the central bank (like the Reserve Bank of India) needs to take actions that reduce the amount of money available with the public and commercial banks. Selling government securities and selling foreign exchange are tools used for monetary contraction.<\/section>\n<section id=\"pyq-key-points\">\n1.  **Purchase of Treasury Bills by the central bank from public:** The central bank pays money to the public in exchange for securities. This injects money into the economy, increasing money supply (expansionary).<br \/>\n2.  **Sale of Treasury Bills by the central bank to public:** The central bank receives money from the public in exchange for securities. This withdraws money from the economy, decreasing money supply (contractionary). This is an Open Market Operation (OMO) used for contraction.<br \/>\n3.  **Sale of foreign exchange by the central bank:** The central bank sells foreign currency and receives domestic currency in return. This takes domestic currency out of circulation, decreasing money supply (contractionary).<br \/>\n4.  **Purchase of foreign exchange by the central bank:** The central bank buys foreign currency and pays domestic currency. This injects domestic currency into circulation, increasing money supply (expansionary).<br \/>\nTherefore, actions 2 and 3 lead to a contraction of the money supply.<\/section>\n<section id=\"pyq-additional-information\">Monetary policy tools used by central banks include OMOs (buying\/selling government securities), adjusting policy rates (like repo rate, reverse repo rate), and varying reserve requirements (like Cash Reserve Ratio, Statutory Liquidity Ratio). Selling securities and selling foreign exchange are typically tightening measures.<\/section>\n","protected":false},"excerpt":{"rendered":"<p>Which of the following action(s) by the Government would lead to contraction of money supply in the economy ? 1. Purchase of Treasury Bills by the central bank from public 2. Sale of Treasury Bills by the central bank to public 3. Sale of foreign exchange by the central bank 4. Purchase of foreign exchange &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Which of the following action(s) by the Government would lead to contr\" class=\"read-more button\" href=\"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/#more-86427\">Detailed Solution<span class=\"screen-reader-text\">Which of the following action(s) by the Government would lead to contr<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1088],"tags":[1105,1120,1190],"class_list":["post-86427","post","type-post","status-publish","format-standard","hentry","category-upsc-cds-2","tag-1105","tag-economic-development","tag-money-banking","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Which of the following action(s) by the Government would lead to contr<\/title>\n<meta name=\"description\" content=\"To contract the money supply in the economy, the central bank (like the Reserve Bank of India) needs to take actions that reduce the amount of money available with the public and commercial banks. Selling government securities and selling foreign exchange are tools used for monetary contraction. 1. **Purchase of Treasury Bills by the central bank from public:** The central bank pays money to the public in exchange for securities. This injects money into the economy, increasing money supply (expansionary). 2. **Sale of Treasury Bills by the central bank to public:** The central bank receives money from the public in exchange for securities. This withdraws money from the economy, decreasing money supply (contractionary). This is an Open Market Operation (OMO) used for contraction. 3. **Sale of foreign exchange by the central bank:** The central bank sells foreign currency and receives domestic currency in return. This takes domestic currency out of circulation, decreasing money supply (contractionary). 4. **Purchase of foreign exchange by the central bank:** The central bank buys foreign currency and pays domestic currency. This injects domestic currency into circulation, increasing money supply (expansionary). Therefore, actions 2 and 3 lead to a contraction of the money supply.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Which of the following action(s) by the Government would lead to contr\" \/>\n<meta property=\"og:description\" content=\"To contract the money supply in the economy, the central bank (like the Reserve Bank of India) needs to take actions that reduce the amount of money available with the public and commercial banks. Selling government securities and selling foreign exchange are tools used for monetary contraction. 1. **Purchase of Treasury Bills by the central bank from public:** The central bank pays money to the public in exchange for securities. This injects money into the economy, increasing money supply (expansionary). 2. **Sale of Treasury Bills by the central bank to public:** The central bank receives money from the public in exchange for securities. This withdraws money from the economy, decreasing money supply (contractionary). This is an Open Market Operation (OMO) used for contraction. 3. **Sale of foreign exchange by the central bank:** The central bank sells foreign currency and receives domestic currency in return. This takes domestic currency out of circulation, decreasing money supply (contractionary). 4. **Purchase of foreign exchange by the central bank:** The central bank buys foreign currency and pays domestic currency. This injects domestic currency into circulation, increasing money supply (expansionary). Therefore, actions 2 and 3 lead to a contraction of the money supply.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T03:46:46+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Which of the following action(s) by the Government would lead to contr","description":"To contract the money supply in the economy, the central bank (like the Reserve Bank of India) needs to take actions that reduce the amount of money available with the public and commercial banks. Selling government securities and selling foreign exchange are tools used for monetary contraction. 1. **Purchase of Treasury Bills by the central bank from public:** The central bank pays money to the public in exchange for securities. This injects money into the economy, increasing money supply (expansionary). 2. **Sale of Treasury Bills by the central bank to public:** The central bank receives money from the public in exchange for securities. This withdraws money from the economy, decreasing money supply (contractionary). This is an Open Market Operation (OMO) used for contraction. 3. **Sale of foreign exchange by the central bank:** The central bank sells foreign currency and receives domestic currency in return. This takes domestic currency out of circulation, decreasing money supply (contractionary). 4. **Purchase of foreign exchange by the central bank:** The central bank buys foreign currency and pays domestic currency. This injects domestic currency into circulation, increasing money supply (expansionary). Therefore, actions 2 and 3 lead to a contraction of the money supply.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/","og_locale":"en_US","og_type":"article","og_title":"Which of the following action(s) by the Government would lead to contr","og_description":"To contract the money supply in the economy, the central bank (like the Reserve Bank of India) needs to take actions that reduce the amount of money available with the public and commercial banks. Selling government securities and selling foreign exchange are tools used for monetary contraction. 1. **Purchase of Treasury Bills by the central bank from public:** The central bank pays money to the public in exchange for securities. This injects money into the economy, increasing money supply (expansionary). 2. **Sale of Treasury Bills by the central bank to public:** The central bank receives money from the public in exchange for securities. This withdraws money from the economy, decreasing money supply (contractionary). This is an Open Market Operation (OMO) used for contraction. 3. **Sale of foreign exchange by the central bank:** The central bank sells foreign currency and receives domestic currency in return. This takes domestic currency out of circulation, decreasing money supply (contractionary). 4. **Purchase of foreign exchange by the central bank:** The central bank buys foreign currency and pays domestic currency. This injects domestic currency into circulation, increasing money supply (expansionary). Therefore, actions 2 and 3 lead to a contraction of the money supply.","og_url":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2025-06-01T03:46:46+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/","url":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/","name":"Which of the following action(s) by the Government would lead to contr","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2025-06-01T03:46:46+00:00","dateModified":"2025-06-01T03:46:46+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"description":"To contract the money supply in the economy, the central bank (like the Reserve Bank of India) needs to take actions that reduce the amount of money available with the public and commercial banks. Selling government securities and selling foreign exchange are tools used for monetary contraction. 1. **Purchase of Treasury Bills by the central bank from public:** The central bank pays money to the public in exchange for securities. This injects money into the economy, increasing money supply (expansionary). 2. **Sale of Treasury Bills by the central bank to public:** The central bank receives money from the public in exchange for securities. This withdraws money from the economy, decreasing money supply (contractionary). This is an Open Market Operation (OMO) used for contraction. 3. **Sale of foreign exchange by the central bank:** The central bank sells foreign currency and receives domestic currency in return. This takes domestic currency out of circulation, decreasing money supply (contractionary). 4. **Purchase of foreign exchange by the central bank:** The central bank buys foreign currency and pays domestic currency. This injects domestic currency into circulation, increasing money supply (expansionary). Therefore, actions 2 and 3 lead to a contraction of the money supply.","breadcrumb":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-actions-by-the-government-would-lead-to-contr\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/exam.pscnotes.com\/mcq\/"},{"@type":"ListItem","position":2,"name":"UPSC CDS-2","item":"https:\/\/exam.pscnotes.com\/mcq\/category\/upsc-cds-2\/"},{"@type":"ListItem","position":3,"name":"Which of the following action(s) by the Government would lead to contr"}]},{"@type":"WebSite","@id":"https:\/\/exam.pscnotes.com\/mcq\/#website","url":"https:\/\/exam.pscnotes.com\/mcq\/","name":"MCQ and Quiz for Exams","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/exam.pscnotes.com\/mcq\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209","name":"rawan239","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","caption":"rawan239"},"sameAs":["https:\/\/exam.pscnotes.com"],"url":"https:\/\/exam.pscnotes.com\/mcq\/author\/rawan239\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/86427","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/comments?post=86427"}],"version-history":[{"count":0,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/86427\/revisions"}],"wp:attachment":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/media?parent=86427"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/categories?post=86427"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/tags?post=86427"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}