When the cash reserve ratio (CRR) is increased by the RBI, it will:
A)Increase the supply of money in the economy
B)Decrease the supply of money in the economy
C)No impact on the supply of money in the economy
D)Initially increase the supply but later on decrease automatically.

Question

Quizplus · Accepted Answer

When the Reserve Bank of India (RBI) increases the Cash Reserve Ratio (CRR), banks are required to hold a larger portion of their deposits as reserves with the RBI. This reduces the amount of funds banks have available to lend, thereby decreasing the supply of money in the economy.

When the Cash Reserve Ratio (CRR) Is Increased by the RBI