CA Foundation P4 · Chapter 8 · Question 11 of 15
An increase in the cash reserve ratio (CRR) will, other things being equal:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Reduce the money multiplier and the money supply
Explanation
A higher CRR requires banks to keep a larger share of deposits with the central bank, leaving less to lend. In the formula (1 + c)/(c + r), a higher r reduces the multiplier and therefore the money supply.
More Money Market MCQs
- Q13Under the amended RBI Act, 1934, the policy repo rate required to achieve the inflation target is determined by:
- Q14In the Baumol-Tobin inventory approach to transactions demand for money, an increase in the interest rate will:
- Q15Milton Friedman's restatement of the quantity theory treats the demand for money as:
- Q1The most fundamental function of money, which removes the need for a double coincidence of wants, is its function as a:
- Q2Money that is accepted as legal tender by government decree but is not backed by any commodity is called: