What would be the impact on the economy if people start holding more currency in hand and less in deposits ?
Money demand will increase
Incorrect AnswerMoney multiplier will decrease
Correct AnswerMoney multiplier will increase
Incorrect AnswerMoney demand will decrease
Incorrect AnswerExplanation:
Money Multiplier Will Decrease: The money multiplier effect relies on the fractional reserve banking system, where banks lend out a portion of the deposits they hold. If people start holding more currency in hand rather than in deposits, banks will have less money to lend out, thereby reducing the money multiplier effect. This is the correct answer.
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By: Arun Rana