2023 · Q66
What would be the impact on the economy if people start holding more currency in hand and less in deposits?
General KnowledgeIndian Economy
- AMoney demand will increase.
- BMoney multiplier will decrease.
- CMoney multiplier will increase.
- DMoney demand will decrease.
Explanation
The money multiplier depends inversely on the currency-deposit ratio: if people hold more currency in hand and keep less in deposits, banks have fewer reserves to lend from, so the multiplier decreases. The demand for money is a separate concept from the multiplier.