Question
What is the ratio of money held by the public in
currency to that held as deposits in commercial banks called?Solution
The currency deposit ratio shows the amount of currency that people hold as a proportion of aggregate deposits. 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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