What would be the impact on the economy if people start holding more currency in hand and less in deposits ?
- A. Money demand will increase
- B. Money multiplier will decrease ✓
- C. Money multiplier will increase
- D. Money demand will decrease
Correct Answer: B. Money multiplier will decrease
Explanation
If people hold more currency in hand rather than depositing it, banks have fewer reserves available to create credit. This leads to a decrease in the money multiplier.
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