Imagine yourself as the RBI governer, how would you use the tool of CRR to increase the investment in the economy?
Dear Student,
CRR refers to the minimum portion of the total deposits that the commercial banks has to maintain with the central bank(RBI) in the form of reserves. To increase the investment in the economy this would be appropriate to reduce the CRR. Reductions of CRR increase credit creation capacity of the commercial banks. Accordingly the flow of Credit increase in market. Also rate of interest tends to decrease when the availability of credit increases. Consequently demand for credit increase for the purposes of investment.
Regards
CRR refers to the minimum portion of the total deposits that the commercial banks has to maintain with the central bank(RBI) in the form of reserves. To increase the investment in the economy this would be appropriate to reduce the CRR. Reductions of CRR increase credit creation capacity of the commercial banks. Accordingly the flow of Credit increase in market. Also rate of interest tends to decrease when the availability of credit increases. Consequently demand for credit increase for the purposes of investment.
Regards