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Question
State the impact of demonetization on interest rates, private wealth and real estate.
Solution
Demonetisation refers to the withdrawal of the status of legal tender to the currency in circulation. It occured in India from the midnight of November 8, 2016. The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes and they ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.
Its impact is explained below:
Interest rate- The deposit held in the bank increased. There was also an increase in the financial savings. The number of cash transactions reduced considerably.
Private wealth- Private wealth declined. Some of the high demonetized notes were not returned and the prices of the real estate fell.
Real estate- The prices of the real estate fell.
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