Question

To boost the falling demand the economy the reserve bank of india recently reduced the cash reserve ratio elaborate the rationale behind the steps taken by the central bank

Answer 1

Explanation:

Cash Reserve Ratio ensures that a part of the bank’s deposit is with the Central Bank and is hence, secure.

Another objective of CRR is to keep inflation under control. During high inflation in the economy, RBI raises the CRR to lower the bank’s loanable funds.

Answer 2

Answer:

Cash reserve ratio ensures a fixed amount of deposit with RBI, which reduces the lending capacity with commercial banks.

Explanation:

-Reducing CRR will result in more lending by commercial banks and thus increasing money supply in the economy.
-When money supply increases, purchases will increase, so will the production and employement is thus generated.