GK
INDIAN ECONOMY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increases
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Decreases
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Remains constant
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None of these
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Detailed explanation-1: -Detailed Solution. The correct answer is-to increase it. CRR is used to regulate the money supply, level of inflation, and liquidity in the country. When the RBI decides to lower the Cash Reserve Ratio, the amount of money that is available with the banks increases.
Detailed explanation-2: -So, When CRR is increased, it decreases money supply, Increases interest rates on home loans, car loans etc. and in inter-bank market, Increases demand for money and decreases inflation.
Detailed explanation-3: -When the CRR rate is reduced by RBI, commercial banks can offer more advances to borrowers which in turn increases the flow of cash to the public. CRR helps in improving the declining rate by absorbing the liquidity when market interest rates go down intensely.