If the Cash Reserve Ratio is lowered by the RBI, supply of money in the economy will :
This questions was previously asked in
CAPF 2023 Paper-1
remain unchanged.
Incorrect Answerdecrease .
Incorrect Answerhave ambiguous impact.
Incorrect AnswerExplanation:
- The Cash Reserve Ratio (CRR) is the percentage of a bank's deposits that must be maintained with the central bank, such as the RBI, and not used for lending.
- Lowering the CRR means that banks can hold less money with the RBI and thus have more funds available to lend out or invest.
- Option 1 (Remain Unchanged): This isn't correct because changing the CRR directly impacts the amount banks can lend.
- Option 2 (Decrease): This is incorrect; decreased CRR allows banks to lend more, opposite of a decrease.
- Option 3 (Increase): This is correct. A lower CRR increases the money supply as banks have more to lend.
- Option 4 (Ambiguous Impact): This is incorrect because the effect is direct and understood.