Question

Which principle provides elasticity in money supply?

• A. Currency Principle
• B. Banking Principle
• C. Gold Standard
• D. Fixed Exchange System

Answer 1

Answer:

B. Banking Principle

Under the Banking Principle, currency notes can be issued against gold, foreign exchange, and government securities, not just government securities. This allows the central bank to expand or contract the money supply according to the economy’s needs, providing flexibility and elasticity in monetary management.