Economy UPPSC 2010 GS-I
Question

An increase in CRR by the Reserve Bank of India results in

Answer & Solution

Answer: (Detailed Solution Below)

Option B: Reduction in liquidity in the economy.

Detailed Solution:

The correct answer is “Reduction in liquidity in the economy.”.

When the Reserve Bank of India (RBI) increases the cash reserve ratio (CRR), it results in a reduction in liquidity in the economy.

The Cash Reserve Ratio (CRR) is the portion of a bank's deposits that it must hold with the Reserve Bank of India as a reserve.

When the RBI increases the CRR, banks are required to hold a larger portion of their deposits with the RBI, leaving them with less money to lend out. This reduces the overall liquidity in the economy, meaning there is less money available for borrowing and spending.

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