SSC Economics Sample Paper NCERT Sample Paper-2

  • question_answer
    When the Reserve Bank of India announces an increase of the Cash Reserve Ratio (CRR), what does it mean?

    A) The commercial banks will has less money to lend.

    B) The RBI will have less money to lend.

    C) The Union Government will have less money to lend.

    D) The commercial banks will have more money to lend.

    Correct Answer: A

    Solution :

    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. CRR is set according to the guidelines of the central bank of a country. The amount specified as the CRR is held in cash and cash equivalents, is stored in bank vaults or parked with the Reserve Bank of India. The aim here is to ensure that banks do not run out of cash to meet the payment demands of their depositors. CRR is a crucial monetary policy tool and is used for controlling money supply in an economy. CRR specifications give greater control to the central bank over money supply. Commercial banks have to hold only some specified part of the total deposits as reserves. This is called fractional reserve banking.

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