Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q110 (IAS/2010) Economy › Money, Banking & Inflation › Monetary policy tools Answer Verified

When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean?

Result
Your answer: —  Â·  Correct: A
Explanation

Cash Reserve Ratio (CRR) is the share of a bank’s deposits that must be kept as cash reserves with the RBI; for example, if CRR = 20% on Rs 100 deposits the bank must hold Rs 20 and can lend only the remaining Rs 80 [1]. Changing the CRR is a quantitative monetary tool precisely because altering the reserve ratio directly changes banks’ capacity to create credit: an increase in the reserve ratio reduces the funds banks can lend, thereby contracting money supply [2]. Practical descriptions of CRR state explicitly that a higher CRR leaves less liquidity with banks for lending and investment. Hence option (1) is correct.

Sources

  1. [1] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > Cash Reserve Ratio (CRR) = Percentage of deposits which a bank must keep as cash reserves with the bank. > p. 40
  2. [2] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > 3.4 POLICY TOOLS TO CONTROL MONEY SUPPLY > p. 42
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
61%
got it right
✓ Thank you! We'll review this.

SIMILAR QUESTIONS

IAS · 2015 · Q22 Relevance score: 3.11

When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?

IAS · 2011 · Q87 Relevance score: 2.02

The lowering of Bank Rate by the Reserve Bank of India leads to

CDS-I · 2020 · Q92 Relevance score: 1.27

The Cash Reserve Ratio refers to

IAS · 2012 · Q100 Relevance score: 1.11

The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following? 1. Other banks retain their deposits with the RB I. 2. The RBI lends funds to the commercial banks in times of need. 3. The RBI advises the commercial banks on monetary matters. Select the correct answer using the codes given below:

IAS · 2021 · Q21 Relevance score: 0.57

The money multiplier in an economy increases with which one of the following?