Cash Reserve Ratio

Which one of the following is most likely to occur if the Reserve bank of India lowers the cash reserve Ratio?

  1. An Increase in aggregate savings
  2. A rise in Budget Deficit
  3. A rise in aggregate money supply
  4. A rise in the use of credit cards
Monis Rasool Professor Asked on 24th August 2015 in Economics.
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  • 1 Answer(s)

    A rise in aggregate money supply

    First of all CRR is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down.If CRR is at 4 percent, that means for every 100 rupees, the banks keeps 4 rupees with the RBI in cash. The ratio indicated the policy stance of the bank and is used as a tool to manage liquidity. By changing this ratio, the RBI can control the amount of liquidity.

    Monis Rasool Professor Answered on 5th September 2015.
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