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:

1. An increase in the money supply means more money is circulating in the economy. 2. Statement 1: When the Central Bank (RBI) purchases government securities from the public, it pays the sellers by injecting fresh money into the system. This is a tool of Open Market Operations (OMO) and directly increases the money supply. Correct. 3. Statement 2: When the public deposits currency in commercial banks, it converts currency held by the public into demand deposits. While this increases bank deposits and can potentially lead to credit creation through the money multiplier, the initial act itself doesn't increase the overall measure of money supply (like M1 or M3), as it's a transfer between components. Incorrect. 4. Statement 3: When the government borrows from the Central Bank (RBI), it essentially means the RBI creates new money (often called deficit financing or monetization of debt) to lend to the government. The government then spends this money, putting it into circulation and increasing the money supply. Correct. 5. Statement 4: When the Central Bank sells government securities to the public, the buyers pay the Central Bank, withdrawing money from circulation. This is an OMO tool used to decrease the money supply. Incorrect. 6. Therefore, measures 1 and 3 result in an increase in the money supply.