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True, Explanation:- An increase in the cash reserve ratio reduces the excess reserves of commercial banks and limits their credit-creating power. Additional Information:- Cash Reserve Ratio (CRR): It refers to the minimum percentage of net demand and time liabilities, to…
Loans offered by commercial banks increase (increase/decrease) the money supply in the economy. Explanation:- commercial banks offer loans to others from the cash reserves created by initial deposits by the public. The amount of such a loan is provided to…
Reserve Bank of India (RBI) is the agent and advisor to the Government of India. Explanation:- One of the functions of the Central Bank is the Bank to the government. Banker to the Government:- The Reserve Bank of India acts…
Primary Deposits + Secondary Deposits = Demand Deposits of the Commercial Banks. Explanation:- Primary Deposits are the cash deposits of people with Commercial Banks in different deposit accounts such as savings accounts, current accounts, term deposit accounts, and other deposits. On the other hand, Secondary or Derivative…
Secondary or Derivative Deposits are those deposits which arise due to loans given by the banks to the people. Explanation:- Primary Deposits are the cash deposits of people with Commercial Banks in different deposit accounts such as savings accounts, current accounts, term deposit accounts,…
Cash deposits with the Commercial Banks are Primary (Primary/Secondary) Deposits. Explanation:- Primary Deposits are the cash deposits of people with Commercial Banks in different deposit accounts such as savings accounts, current accounts, term deposit accounts, and other deposits. On the…
If Legal Reserve Ratio is 25%, then value of credit multiplier would be 4. Explanation:- Credit Multiplier = 1/LRR Credit Multiplier = 1/25% Credit Multiplier = 4 times
Commercial Banks earn interest from lending money, So, they want to lend the maximum possible amount. However, there is a limit to credit creation by banks and this is determined by Legal Reserve Ratio, which is fixed by Central Bank.…
In the present COVID-19 times, many economists have raised their concerns that Indian economy may have to face a deflationary situation, due to reduced economic activities in the country. Suppose you are a member of the high powered committee constituted…
Value of Money Multiplier decreases (increases/decreases/remains unchanged) with an increase in Cash Reserve Ratio. Explanation:- Money Multiplier = 1/LRR LRR consists of 1) Cash Reserve Ratio (CRR) 2) Statutory Liquidity Ratio (SLR) That means: Money Multiplier = 1/CRR + SLR…