MAY 2025Foundation
What is the likely impact of an increase in the Time Deposit to Demand Deposit (TD/DD) ratio on the banking system and monetary expansion?
A
(A) It leads to higher availability of free reserves and consequent enlargement of volume of multiple deposit expansion and monetary expansion.
B
(B) It reduces the availability of free reserves, thereby restricting the process of monetary expansion.
C
(C) It has no impact on the banking system as time deposits and demand deposits are interchangeable.
D
(D) It directly reduces the money supply as time deposits are not considered part of the money supply.