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

examrobotsa's picture

Submitted by examrobotsa on

Q: 111 (IAS/2010)
When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,436,70,436,24,9,37

keywords: 

{'cash reserve ratio': [0, 0, 1, 2], 'reserve bank': [1, 0, 3, 4], 'commercial banks': [0, 0, 1, 1], 'more money': [0, 0, 1, 0], 'increase': [3, 1, 10, 35], 'less money': [0, 0, 1, 0]}

When the Reserve Bank of India announces an increase in the Cash Reserve Ratio (CRR), it means that the commercial banks will have to maintain a higher percentage of their deposits as reserves with the RBI. This leaves the banks with less money to lend, which in turn reduces the availability of credit in the economy. Therefore, the correct option is "The commercial banks will have less money to lend".