During festive season, the currency deposit ratio _______.

The correct option is increases.

To understand why the currency deposit ratio increases during the festive season, let us break down the concept step-by-step:

1. Understanding the Currency Deposit Ratio (CDR):
The currency deposit ratio (CDR) is a financial metric that represents the relationship between the amount of currency held by the public in hand (liquid cash) and the amount of money they deposit in banks. Mathematically, it is expressed as:
$$\text{Currency Deposit Ratio (CDR)}=\frac{\text{Currency held by the Public}}{\text{Demand Deposits in Banks}}$$
This ratio reflects the public's preference for holding liquid cash relative to bank deposits.

2. Behavior During the Festive Season:
During festive seasons, festivals, and major holidays, consumer spending typically rises significantly due to increased purchases of goods, gifts, clothing, sweets, and services.
To facilitate these frequent and small-scale transactions, people prefer to have more immediate liquid cash (physical currency) in their hands rather than leaving it in bank accounts. As a result, the demand for physical cash increases, leading people to withdraw money from their bank accounts.

3. Impact on the Components of the Ratio:
When people withdraw money from banks to spend during festivals:
- The numerator, Currency held by the Public, goes up.
- The denominator, Demand Deposits in Banks, goes down.
Since the numerator increases and the denominator decreases, the overall value of the fraction rises. Therefore, the currency deposit ratio increases during the festive season.