Correct Option (c)
- Statement 1: When the Central Bank purchases government securities from the public, it pays the public in return. This injects money into the banking system, increasing the reserves of commercial banks and the money held by the public. This direct injection of funds expands the money supply in the economy. This measure is a part of Open Market Operations (OMO).
- Statement 3: When the government borrows from the Central Bank, the Central Bank typically credits the government's account. This action increases the monetary base and effectively creates new money, leading to an expansion of the money supply in the economy.
Incorrect Options
- Statement 2: The deposit of currency in commercial banks by the public represents a shift of existing money from physical currency in circulation to bank deposits. This action, by itself, does not directly increase the total money supply (e.g., M1 or M3) in the economy. While it increases bank reserves, potentially enabling more lending through the money multiplier, the initial act is a change in the composition of money, not an expansion of its total volume.
- Statement 4: The sale of government securities to the public by the Central Bank involves the public paying the Central Bank for these securities. This withdraws money from the banking system and the public, thereby reducing liquidity and contracting the money supply. This measure is also a part of Open Market Operations (OMO).
Based on the analysis, only measures 1 and 3 would result in an increase in the money supply. Therefore, options (a), (b), and (d) are incorrect as they either omit a correct measure or include an incorrect measure.