If Reserve Bank of India reduces the cash reserve ratio, it will :
Options:
A . decrease credit creation
B . increase credit creation
C . have no impact on credit creation
D . have no definite impact on credit creation
Answer: Option B Answer: (b) Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. An increase in CRR means that banks have fewer funds available and money is sucked out of circulation; on the contrary, reduction in CRR leads to credit creation. CRR is used by RBI to control liquidity in the banking system.
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