The correct answer is Money multiplier will decrease. Explanation & Key Takeaways: • Money multiplier will reduce: • The money multiplier effect depends on the fractional reserve banking system, where banks lend out a portion of the deposits they hold. • If people start holding more currency in hand instead of in deposits, banks will have less money to lend, reducing the money multiplier effect. Related Concepts: • In monetary economics, the demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits rather than investments. This may refer to money demand defined as M1 (directly spendable holdings) or money in the broader sense of M2 or M3. • The nominal demand for money increases with the level of nominal output (price level times real output) and decreases with the nominal interest rate. • The real demand for money is defined as the nominal amount of money divided by the price level.