What would be the impact on the economy if people start holding more currency in hand and less in deposits?

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Submitted by examrobotsa on

Q: 120 (CDS-II/2023)
What would be the impact on the economy if people start holding more currency in hand and less in deposits?

question_subject: 

Economics

question_exam: 

CDS-II

When people hold more cash and deposit less in banks, it reduces the base money available for banks to lend, thus decreasing the money multiplier effect.