GK
INDIAN ECONOMY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If the cash reserve ratio is lowered by the RBI, its impact on credit creation will be to
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increase it
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decrease it
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no impact
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None of the above
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Explanation:
Detailed explanation-1: -The correct answer is It will increase. Cash Reserve Ratio (C. R. R.) refers to the number of money banks have to keep with the central bank. If RBI reduces the cash reserve ratio, credit creation will increase.
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.
There is 1 question to complete.