Which of the following measures results into contraction of credit?
A. Reduction in bank rate B. Purchase of securities by the central
bank
C. Reducing the cash reserve ratio of
the bank
D. Selective credit control
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Answer:
The answer will be c.) Reducing the cash reserve ratio of the bank.
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0
Contraction of credit is due to Reducing the cash reserve ratio of the bank.
Cash Reserve Ratio (CRR)
The Cash reserve ratio (CRR) is generally defined as a particular minimum amount of deposits that needs to be maintained as a reserve by every commercial bank.
The CRR will be fixed as per the rules and regulations of the RBI.
The Reserve Bank of India constantly works towards monitoring the cash flow in the entire economy of the nation. It has several monetary tools and instruments in order to control and manage the economy in terms of different aspects. One of these important monetary instruments is the cash reserve ratio.
However, one needs to note that when the CRR maintained with the RBI is high, the liquidity will be low in the economic system.
Learn more about CRR here,
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