Q. Consider the following:

1. Growth rate of the economy
2. Replacement demand
3. Reserve stock requirements
4. Budget Allocations to various departments

Which of the above are used by RBI to estimate the demand for banknotes?
Answer: 1, 2 and 3
Notes: The RBI estimates demand for banknotes based on the economy’s growth rate (1), to match increasing economic activity; replacement demand (2), as old notes wear out; and reserve stock requirements (3), to ensure smooth distribution. Budget allocations to departments (4) are not directly relevant to RBI’s estimation of banknote demand.