The effect of increase in Cash Reserve Ratio will be reduced or nullif
Right Answer is: A
• A part of the total deposit of Commercial Banks which is held as a reserve as mandated by the Reserve Bank of India is known as Cash Reserve Ratio.
• This amount is held in the form of cash or cash equivalent which is stored with the Commercial Bank or deposited with the RBI.
• CRR helps in regulating the money supply and the level of inflation in India.
• It also ensures that the banks do not run out of money in difficult situations.
• Increase in Cash Reserve Ratio reduces the money supply in an economy while decrease in Cash Reserve Ratio increases the money supply.
• Reduction in Bank Rate might reduce or nullify the effect of increase in Cash Reserve Ratio.