If more people decide to settle their debts using cash rather?

Question

If more people decide to settle their debts using cash rather than by transferring bank deposits, then, when the banking system has fully adjusted, this will tend to:

A. increase the total money supply;

B. reduce the total money supply;

C. increase the demand of money;

D. leave the demand and supply of money unchanged.

Answer 1

Debt is Money. If you hold $1 in your pocket, then somebody else in America Owes $1.

This means that if all debt was repaid, the United States would have no money. There wouldn't be one red nickel left in the economy. That is why paying down the Federal Debt would lead to deflation. An effect that is currently being experienced by anybody trying to sell a house. You owe X and its worth Y which is less than X.  Cash is king when deflation is in effect. And an example of deflation's impact on an economy and you need only look back to 1933 and the Great Depression.

Answer 2

B,  When I borrow, that increases a demand for money supply that I don't have personally.

Answer 3

C) It will increase the demand for money, more cash will be required because more cash will be being used.