The money multiplier in an economy increases with which one of the following?
This questions was previously asked in
UPSC CSP Previous Year Paper (2019)
Increase in the cash reserve ratio
Incorrect AnswerIncrease in the banking habit of the population
Correct AnswerIncrease in the statutory liquidity ratio
Incorrect AnswerIncrease in the population of the country
Incorrect AnswerExplanation:
Money Multiplier is the ratio of the stock of money to the stock of high powered money. It is the relationship between the monetary base and money supply of an economy. It explains the increase in the amount of cash in circulation generated by the banks' ability to lend money out of their depositors' funds. Therefore, it refers to how an initial deposit can lead to a bigger final increase in the total money supply.
Money Multiplier directly improves with cut in legal reserve ratios (SLR, CRR: so A and D are wrong).
Money Multiplier indirectly improves as economy develops, consumption / loan demand increases, banking penetration improves etc.
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By: Abhipedia