Class 12 Exam > Class 12 Videos > Class 12th macroeconomics | Central Bank | Functions of central | Credit Control (CRR, SLR)
Class 12th macroeconomics | Central Bank | Functions of central | Credit Control (CRR, SLR) Video Lecture
FAQs on Class 12th macroeconomics - Central Bank - Functions of central - Credit Control (CRR, SLR) Video Lecture
| 1. What is the role of the central bank in an economy? |  |
| 2. What are the functions of the central bank? | |
Ans. The central bank performs various functions such as controlling the money supply, maintaining price stability, ensuring financial stability, managing foreign exchange reserves, acting as a lender of last resort, regulating and supervising banks, and formulating and implementing monetary policies.
| 3. What is the Cash Reserve Ratio (CRR)? | |
Ans. The Cash Reserve Ratio (CRR) is the percentage of a bank's total deposits that it is required to keep with the central bank as reserves in the form of cash. It is a monetary policy tool used by the central bank to control the liquidity in the economy. By increasing the CRR, the central bank reduces the lending capacity of banks, thereby curbing inflation. Conversely, a decrease in the CRR increases the lending capacity of banks, stimulating economic growth.
| 4. What is the Statutory Liquidity Ratio (SLR)? | |
Ans. The Statutory Liquidity Ratio (SLR) is the percentage of a bank's total deposits that it is required to maintain in the form of liquid assets such as cash, gold, or government securities. It is a tool used by the central bank to ensure the solvency and liquidity of banks. By increasing the SLR, the central bank reduces the amount of funds available for lending, thus controlling inflation. Conversely, a decrease in the SLR increases the funds available for lending, promoting economic growth.
| 5. How does the central bank use credit control measures to influence the economy? | |
Ans. The central bank uses credit control measures such as the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) to influence the economy. By increasing or decreasing these ratios, the central bank can regulate the liquidity in the banking system. If the central bank wants to curb inflation, it may increase the CRR and SLR, reducing the lending capacity of banks and controlling the money supply. Conversely, during times of economic slowdown, the central bank may decrease the CRR and SLR, injecting liquidity into the system and stimulating lending and economic growth.
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Mar 05, 2025
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