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Increase in cash reserve ratio leads to
- a)increase in bank credit
- b)decrease in bank credit
- c)constant bank credit
- d)excess bank credit
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
Increase in cash reserve ratio leads to a)increase in bank credit ...
When the central bank wants increase the money supply in the economy it decreases the cash reserve ratio. Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. So central bank decreases the cash reserve ratio so that large amount of money is available with commercial banks for credit creation.
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Increase in cash reserve ratio leads to a)increase in bank credit ...
Under CRR, all the scheduled commercial banks need to keep atleast some portion of their money with RBI.
So, when RBI increases the CRR, all the SC banks will now have to keep a large % of their resources I.e money with RBI. So the lendable resources of the SC banks automatically comes down and thus there is a decrease in bank credit.
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Increase in cash reserve ratio leads to a)increase in bank credit b)decrease in bank credit c)constant bank credit d)excess bank creditCorrect answer is option 'B'. Can you explain this answer?
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