Which among the following will lead to a reduction in the money supply of the economy?

Selling of a bond by RBI to private individuals or institutions

The answer is Option 1: Selling of a bond by RBI to private individuals or institutions.

When the RBI sells a bond, it is essentially taking money out of circulation. This is because the private individuals or institutions that buy the bond are giving their money to the RBI in exchange for the bond. As a result, there is less money available to spend in the economy.

Option 2, buying of a bond by RBI from private individuals or institutions, will lead to an increase in the money supply of the economy. This is because when the RBI buys a bond, it is essentially giving money to private individuals or institutions in exchange for the bond. As a result, there is more money available to spend in the economy.

Options 3 and 4, decrease in bank rate and reduction in cash reserve ratio, will also lead to an increase in the money supply of the economy. This is because when the bank rate decreases or the cash reserve ratio is reduced, it becomes cheaper for banks to borrow money from the RBI. As a result, banks are more likely to borrow money and lend it out to businesses and consumers. This will lead to an increase in the money supply of the economy.