During festive season, the currency deposit ratio ______.

increases

The correct answer is Option (1) → increases

The Currency Deposit Ratio: The currency deposit ratio (cdr) is the ratio of money held by the public in currency to that they hold in bank deposits.
cdr = CU/DD.

If a person gets Re 1 she will put Rs 1/(1 + cdr) in her bank account and keep Rs cdr/(1 + cdr) in cash. It reflects people’s preference for liquidity. It is a purely behavioural parameter which depends, among other things, on the seasonal pattern of expenditure. For example, cdr increases during the festive season as people convert deposits to cash balance for meeting extra expenditure during such periods.