If the Cash Reserve Ratio CRR is increased it may lead to which of the following Lesser availability...........

Economic Affairs Money Supply and Monetary Policy

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If the Cash Reserve Ratio (CRR) is increased, it may lead to which of the following

Lesser availability of loanable funds with the banks.
Immediate foreign institutional investment flows in the economy.
Reduction in fiscal deficit of the government.

Select the correct code.

1 only

2 only

1&3 only

None of the above

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Explanation:

CRR is one of the major weapons in the RBI’s arsenal that allows it to maintain a desired level of inflation, control the money supply, and also liquidity in the economy.

The lower the CRR, the higher liquidity with the banks, which in turn goes into investment and lending and vice-versa. Higher CRR can also negatively impact the economy as lesser availability of loanable funds, in turn, slows down investment. It thereby reduces the supply of money in the economy.
Fiscal deficit depends on government’s receipts and expenditures. CRR does not have a direct bearing on fiscal deficit.

Hence only statement 1st is correct.