UPSC 2012: 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:

Open-market purchase of government securities by the central bank injects reserves and expands the monetary base (statement 1). When government borrows directly from the central bank, new high-powered money is created (statement 3). Public deposits of currency merely convert cash into demand deposits without changing M1 (2 false), and sale of securities to the public drains reserves (4 false). Hence only 1 and 3 increase money supply. ([imf.org](https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Monetary-Policy?utm_source=openai))