Question

Decrease in Cash Reserve Ratio will lead to…...........…

(choose the correct alternative)

a. fall in aggregate demand c.rise in aggregate demand

b. no change in aggregate demand d. fall in general price level​

Answer 1

Explanation:

CRR refers to the ratio between cash reserves of the commercial banks with central bank and their total deposits. During inflation, CRR is raised. A rise in CRR reduces the reserves of high powered money with commercial banks. This reduces the credit creation capacity. Accordingly aggregate demand falls, as required to correct inflationary gap in the economy.

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Answer 2

Answer:

The CRR and availability of funds with the banks are inversely proportional to each other i.e. when RBI increases the Cash Reserve Ratio, it leads to lesser funds at disposal with banks. Likewise decreased Cash Reserve Ratio means increased funds at disposal with banks.