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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…
The Central Bank acts as banker to both central and state government. Explanation:- Banker to the Government:- The Reserve Bank of India acts as a banker, agent, and financial advisor to the Central Government and all the State Governments. As…
Components of Legal reserve ratio are Statutory Liquidity Ratio and Cash Reserve Ratio. Explanation:- According to the Legal Reserve requirement, commercial banks are obliged to maintain reserves. It is a very quick and direct method for controlling the credit-creating power…
One rupee note and all coins are issued by the Ministry of Finance. Explanation:- Under Section 22 of the Reserve Bank of India Act, RBI has the sole right to issue currency notes of various denominations except one rupee notes…
Qualitative instruments of monetary policy affect the direction of money supply in the economy. Explanation:- Qualitative controls are designed to regulate the direction of credit.
To decrease money supply in the economy, reverse repo rate should be increased. Explanation:- Reverse Repo Rate:- it is the rate of interest at which commercial banks can deposit their surplus funds with the Central Bank, for a relatively shorter…
Statutory Liquidity Ratio refers to minimum percentage of net demand and time liabilities which commercial banks are required to maintain with themselves. Explanation:- According to Legal Reserve requirements, commercial banks are obliged to maintain reserves. in the form of CRR…
Monetary Policy is the policy adopted by the Central Bank of an economy in the direction of credit control or money supply. Explanation:- The Reserve Bank of India (RBI) is empowered to regulate the money supply in the economy through…