Q. 114.5( 2 Votes )

How does the currency deposit ratio impact the supply of money in the economy?

Answer :

The currency deposit ratio shows the amount of currency that people hold as a proportion of aggregate deposits.

It affects the supply of money in the following manner:


An increase in the cash deposit ratio will lead to a decrease in the money multiplier. An increase in deposit rates will induce the depositors to increase their deposit. This will decrease the Cash to Aggregate Deposit ratio. This will, in turn, lead to a rise in Money Multiplier.


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