Question

. If debit cards become less widely used by consumers and businesses, which of the following is likely to happen?

(More than one answer is correct.)

a. Currency holdings will fall, and the M1 money supply will fall.

b. The amount of currency held by the public will increase.

c. More money will be held as currency and more money will be held in bank accounts, which will increase the reserves of banks and decrease M1 unless the Fed takes offsetting actions.

d. The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.

e. More money will be held as currency and less money will be held in bank accounts, which will decrease the reserves of banks and decrease M1 unless the Fed takes offsetting actions.

Answer 1

b. The amount of currency held by the public will increase.

d. The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.

When people are using less debit card then it means they are holding money in cash which increases amount of currency with public. Debit cards allow customers to use their deposit amount whenever they want, so it will not affect money supply whether people hold money in cash or in bank accounts.