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When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean

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When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean?

(a)

The commercial banks will have less money to lend

(b)

The Reserve Bank of India will have less money to lend

(c)

The Union government will have less money to lend

(d)

The commercial banks will have more money to lend

Answer:

(a)

Core Books/NCERT

Explanation

When the Reserve Bank of India announces an increase in the Cash Reserve Ratio (CRR), it means that the commercial banks will have to maintain a higher percentage of their deposits as reserves with the RBI. This leaves the banks with less money to lend, which in turn reduces the availability of credit in the economy. Therefore, the correct option is “The commercial banks will have less money to lend”.