Q3. b) For an economy if the cash to demand deposit ratio tends to rise
due to preference of citizens of holding greater proportion of money in
their hand, what will be the impact on money supply in the economy. What
could be the likely policy action to counter this so as to maintain the
money multiplier in the economy? (2 + 1)
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The currency deposit ratio shows the amount of currency that people hold as a proportion of aggregate deposits.
Description: An increase in cash deposit ratio leads to a decrease in money multiplier. An increase in deposit rates will induce depositors to deposit more, thereby leading to a decrease in Cash to Aggregate Deposit ratio. This will in turn lead to a rise in Money Multiplier.
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