Currency Holdings and Long Run Economic Growth
If consumers begin to hold a larger portion of their money as cash (i.e., as a liquid asset) rather than depositing it in banks, what is the likely long-run effect on capital investment and thus on the position of the PPC?
Holding more cash reduces the funds available for bank lending, diminishing capital investment and shifting the PPC inward over time.
Such a change only affects the velocity of money and results in a movement along the existing PPC without altering its position.
A higher preference for cash immediately reallocates resources, causing a temporary upward shift along the same PPC.
Increased cash holdings boost consumer confidence and lead to more spending on capital goods, shifting the PPC outward.
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