{"id":86463,"date":"2025-06-01T03:48:19","date_gmt":"2025-06-01T03:48:19","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=86463"},"modified":"2025-06-01T03:48:19","modified_gmt":"2025-06-01T03:48:19","slug":"what-would-be-the-impact-on-the-economy-if-people-start-holding-more-c","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/what-would-be-the-impact-on-the-economy-if-people-start-holding-more-c\/","title":{"rendered":"What would be the impact on the economy if people start holding more c"},"content":{"rendered":"

What would be the impact on the economy if people start holding more currency in hand and less in deposits ?<\/p>\n

[amp_mcq option1=”Money demand will increase” option2=”Money multiplier will decrease” option3=”Money multiplier will increase” option4=”Money demand will decrease” correct=”option2″]<\/p>\n

\n
\n
This question was previously asked in<\/div>\n
UPSC CDS-2 – 2023<\/div>\n<\/div>\n
Download PDF<\/a>Attempt Online<\/a><\/div>\n<\/div>\n
\nThe correct answer is B) Money multiplier will decrease.
\n<\/section>\n
\nWhen people hold more currency in hand and less in deposits, the currency-deposit ratio increases. The money multiplier, which determines the total money supply in the economy based on the monetary base, is inversely related to the currency-deposit ratio. Specifically, the simple money multiplier formula is (1+c)\/(c+r), where c is the currency-deposit ratio and r is the reserve-deposit ratio. An increase in ‘c’ directly reduces the value of the money multiplier.
\n<\/section>\n
\nA higher currency-deposit ratio means that for every unit of reserves held by banks, a smaller amount of deposits can be supported, and less money can be created through the banking system’s lending process. This leads to a contraction in the potential money supply multiplier effect. While an increased preference for holding currency might reflect a change in the form of money demanded, the most direct and certain impact described is on the money multiplier.
\n<\/section>\n","protected":false},"excerpt":{"rendered":"

What would be the impact on the economy if people start holding more currency in hand and less in deposits ? [amp_mcq option1=”Money demand will increase” option2=”Money multiplier will decrease” option3=”Money multiplier will increase” option4=”Money demand will decrease” correct=”option2″] This question was previously asked in UPSC CDS-2 – 2023 Download PDFAttempt Online The correct answer … <\/p>\n

Detailed SolutionWhat would be the impact on the economy if people start holding more c<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1088],"tags":[1105,1120,1190],"class_list":["post-86463","post","type-post","status-publish","format-standard","hentry","category-upsc-cds-2","tag-1105","tag-economic-development","tag-money-banking","no-featured-image-padding"],"yoast_head":"\nWhat would be the impact on the economy if people start holding more c<\/title>\n<meta name=\"description\" content=\"The correct answer is B) Money multiplier will decrease. When people hold more currency in hand and less in deposits, the currency-deposit ratio increases. The money multiplier, which determines the total money supply in the economy based on the monetary base, is inversely related to the currency-deposit ratio. Specifically, the simple money multiplier formula is (1+c)\/(c+r), where c is the currency-deposit ratio and r is the reserve-deposit ratio. An increase in 'c' directly reduces the value of the money multiplier.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/what-would-be-the-impact-on-the-economy-if-people-start-holding-more-c\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What would be the impact on the economy if people start holding more c\" \/>\n<meta property=\"og:description\" content=\"The correct answer is B) Money multiplier will decrease. When people hold more currency in hand and less in deposits, the currency-deposit ratio increases. The money multiplier, which determines the total money supply in the economy based on the monetary base, is inversely related to the currency-deposit ratio. Specifically, the simple money multiplier formula is (1+c)\/(c+r), where c is the currency-deposit ratio and r is the reserve-deposit ratio. An increase in 'c' directly reduces the value of the money multiplier.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/what-would-be-the-impact-on-the-economy-if-people-start-holding-more-c\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T03:48:19+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"What would be the impact on the economy if people start holding more c","description":"The correct answer is B) Money multiplier will decrease. When people hold more currency in hand and less in deposits, the currency-deposit ratio increases. The money multiplier, which determines the total money supply in the economy based on the monetary base, is inversely related to the currency-deposit ratio. Specifically, the simple money multiplier formula is (1+c)\/(c+r), where c is the currency-deposit ratio and r is the reserve-deposit ratio. An increase in 'c' directly reduces the value of the money multiplier.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/what-would-be-the-impact-on-the-economy-if-people-start-holding-more-c\/","og_locale":"en_US","og_type":"article","og_title":"What would be the impact on the economy if people start holding more c","og_description":"The correct answer is B) Money multiplier will decrease. When people hold more currency in hand and less in deposits, the currency-deposit ratio increases. The money multiplier, which determines the total money supply in the economy based on the monetary base, is inversely related to the currency-deposit ratio. Specifically, the simple money multiplier formula is (1+c)\/(c+r), where c is the currency-deposit ratio and r is the reserve-deposit ratio. 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When people hold more currency in hand and less in deposits, the currency-deposit ratio increases. The money multiplier, which determines the total money supply in the economy based on the monetary base, is inversely related to the currency-deposit ratio. Specifically, the simple money multiplier formula is (1+c)\/(c+r), where c is the currency-deposit ratio and r is the reserve-deposit ratio. 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