Selling of a bond by RBI to private individuals or institutions leads to…

Concept: Open Market Operations (OMO) are how a central bank injects or withdraws liquidity by buying or selling government securities. Selling securities is a contractionary OMO — the buyer pays out of bank balances, so that payment flows out of the banking system into the central bank, directly draining bank reserves; with a smaller reserve base, the money (deposit) multiplier supports a correspondingly smaller stock of money in the economy.

1. The buyer pays for the bond by debiting funds held in a bank account.

2. That payment moves from the commercial bank to RBI, so the bank's reserves held with RBI fall — the direct reserve effect described in statement I.

3. A smaller reserve base backs a proportionally smaller volume of deposit money through the money multiplier, so the overall money supply also contracts — the effect described in statement II.

4. Both the reserve-side and the money-supply-side outcomes therefore hold together, not one without the other.

Cross-check: run the operation in reverse — if RBI instead bought the same bond, payment would flow from RBI into the seller's bank account, raising reserves and expanding money supply. That symmetry confirms selling contracts both reserves and money supply rather than affecting only one.

Result: selling of a bond by RBI to private individuals or institutions reduces both the quantity of reserves and the money supply, so both statements I and II hold.