What is meant by Cash Reserve Ratio? How does it increase the money Supply in the economy
Solution:
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.
To increase the money supply in the economy,the Central Bank will reduce the Cash Reserve Ratio which means commercial banks will have to hold less amount of cash as reserves with Central Bank. As a result , cash resources and credit availability will increase, which will increase supply of money in economy.
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.
To increase the money supply in the economy,the Central Bank will reduce the Cash Reserve Ratio which means commercial banks will have to hold less amount of cash as reserves with Central Bank. As a result , cash resources and credit availability will increase, which will increase supply of money in economy.