Demonetisation

Demonetisation means withdrawing the legal status of specified old notes. Legal status is the key term in the definition.

Digital records make transparency and scrutiny easier. In exams write records and transparency together.

Cash shortage could temporarily reduce consumer spending. It is safe to mention the short-term effect.

Businesses accepting digital payments could sell even during cash shortage. Link adaptation with competitive advantage.

The governing concept is the formalisation of financial transactions. When people deposit cash in a bank, the money enters an organised and regulated banking system rather than remaining outside recorded financial channels. The deposit creates a bank record and allows the funds to be used through accounts, transfers, withdrawals, or other authorised services. Thus, option A is correct: cash deposits brought money into the formal banking system. The question does not mean that every deposited rupee became income or that banking removed all cash immediately; it identifies the institutional system receiving the deposits. Sports, school, and weather systems are unrelated distractors because they do not accept or manage customer bank deposits.

Demonetisation is a government decision linked with currency and economy. Write it as an example of policy change.

The governing concept is the withdrawal and scrutiny of specified currency from circulation. Counterfeit notes have no legitimate monetary value and cannot lawfully be exchanged as genuine currency. When old notes were withdrawn and cash was required to pass through exchange or deposit procedures, people holding counterfeit notes could not normally use them in ordinary transactions. Therefore, option A is correct: using the old counterfeit notes became difficult. The policy did not legalise forged currency, transform it into gold, or make it earn interest. Options B, C, and D are therefore not merely unlikely; they contradict the legal and economic nature of counterfeit notes. The item tests a direct consequence related to currency integrity and anti-counterfeit objectives.

The governing concept is the relationship between recorded transactions and tax compliance. When payments and cash deposits move through banks or digital channels, they leave an identifiable trail. Such records can help authorities compare declared income with deposits, sales, and other financial activity, making concealment more difficult and verification more practical. Consequently, option A is correct: more transactions entering records could encourage accurate reporting and improve compliance. This does not mean that every recorded transaction automatically proves taxable income or that tax collection becomes perfect. Option B is wrong because tax laws did not end; C is absurd because taxpayers did not disappear; and D reverses the expected effect, since usable records support rather than weaken verification.

After demonetisation, the withdrawal of old high-value notes and limited availability of new notes could create a cash shortage. Therefore, small workers who were paid daily or weekly in cash could face temporary delays or difficulty in receiving wages. Demonetisation did not automatically double wages or end the legal system of wage payment. Exam tip: Remember cash shortage and disruption of cash transactions as short-term effects of demonetisation.

The governing concept is the complexity of the business environment, which means that several external forces and stakeholder groups are connected. A major policy decision concerning currency can influence customers, retailers, banks, payment technology, tax reporting, savings behaviour, and the movement of goods. These effects may occur together and may differ across businesses and time. Therefore, option A is correct: one decision can affect many areas. Option B incorrectly reduces a broad environmental effect to one person. Option C contradicts the changing nature of business conditions, while option D ignores the strong relationship between public policy and markets. The example demonstrates interdependence, not a single isolated effect.

After demonetisation, reduced availability of cash could encourage consumers and sellers to use digital modes such as cards, wallets, UPI and internet banking more often. Therefore, acceptance and use of online payments in e-commerce could increase. Option B is not necessary, as e-commerce sales would not have to stop completely. Exam tip: Link the effects of demonetisation with greater use of digital payments, formal transactions and a cashless economy.

The governing concept is change in business practices and consumer payment behaviour. A cashless or less-cash economy relies more on cards, bank transfers, mobile applications, and other authorised electronic methods instead of physical currency for routine purchases. Thus, the movement described is specifically a change in the method through which buyers pay and sellers receive money, making option A correct. It does not indicate that education has ended, that farming has automatically been privatised, or that companies must change their names. Those alternatives concern unrelated institutions or administrative matters. The example also shows how a policy-related environmental change can encourage technological adoption and alter everyday commercial transactions.

The governing concept is the cost of adapting business operations to a changed payment environment. If customers have less cash available, a trader may need to arrange a card terminal, QR-based facility, internet connection, software, staff training, or related support. These arrangements can involve installation, transaction, maintenance, or connectivity costs. Therefore, option A is correct because setting up a digital payment system is a plausible additional business expense. The question does not claim that every trader incurred the same amount or that the cost was permanent. Option B is not a cost at all, C describes a benefit or input situation rather than an installation expense, and D is not a normal financing arrangement. The item tests technological adaptation and its possible short-term cost.

Old notes were not accepted in normal payment after legal status was withdrawn. Understand legal tender meaning.

The governing concept is the movement of savings from unrecorded physical cash toward formal financial channels. When holding large amounts of cash becomes inconvenient or uncertain, people may prefer to deposit money in bank accounts. A bank account provides a record, safer custody than many informal hiding places, and access to transfers, withdrawals, and other financial services, subject to applicable rules. Therefore, option A is correct. The question asks about an increased tendency, not an absolute rule that every person stopped holding cash. Keeping money under pillows, in cupboards, or in clay pots represents informal physical storage and does not provide the same banking record or service access. These options are therefore unsuitable.

Demonetisation changed the legal status and usability of certain currency notes and affected payment practices. Businesses therefore needed timely information about government notifications, exchange or deposit procedures, and permitted digital or alternative payment methods. Such information supported lawful and continuous operations. Options B, C, and D are unrelated, so option A is correct.

After demonetisation, old notes were withdrawn and the supply of new notes was initially limited. Consequently, many ATMs had insufficient cash, long queues formed, and withdrawal limits were imposed. Option B is incorrect because ATMs do not pay interest on deposits, while loan waivers are decisions of banks or the government, not ATMs. Exam tip: Remember cash shortages and withdrawal restrictions as immediate effects of demonetisation.

Demonetisation affected economy, technology and customer behaviour together. This is interrelatedness.

Accepting alternative payments maintains customer convenience. Customer convenience helps maintain sales.

The governing concept is business response and adaptation to the external environment. Businesses do not operate in isolation; changes in government policy, money use, technology, and customer behaviour can require them to modify their processes. When a trader adopts cashless payment after a change affecting cash transactions, the trader is responding to an environmental condition and attempting to maintain convenient sales. Therefore, option A is correct. This adaptation does not mean the business is ignoring the law; using an authorised payment method can support compliance. Nothing in the example says that a product was destroyed or that employees were granted leave. Those options describe unrelated events rather than an operational response.