Q. In order to promote digitalization of Indian banking system, the government encourages banks to open more ATMs in rural India, making withdrawals from bank accounts more convenient. Assume the RBI does not change the money supply. [4 marks]

a) According to the theory of liquidity preference, what happens to the interest rate, aggregate demand? Draw a diagram

b) If the RBI wants to stabilize aggregate demand, how should it change the money supply?