The introduction of alternative forms of payment like Venmo and PayPal has

• A. Decreased the demand for cash because they reduce the cost of moving from other assets into cash.
• B. Increased the demand for cash because they make cash easier to get.
• C. Did not change the demand for cash because the demand for cash is proportional to the price level.
• D. Did not change the demand for cash, as ATMs do not affect public spending habits.

Answer: (A)

New, convenient ways to pay reduce the need to hold physical cash. Venmo and PayPal let people pay directly from digital wallets or linked accounts, and they make moving funds from other assets into cash cheaper and easier. Because money is kept partly to facilitate transactions, when non-cash payment options are strong substitutes for cash, households and firms shift away from holding cash and toward these electronic methods. So the overall demand for cash falls as these platforms substitute for cash in everyday transactions.

The other possibilities don’t fit because they either imply cash would be needed more, or they rely on factors like the price level or spending habits without capturing the substitution effect from easier electronic payments.