UPSC Previous Year Question | Prelims GS | 2019

The money multiplier in an economy increases with which one of the following?

  1. Increase in the cash reserve ratio
  2. Increase in the banking habit of the population
  3. Increase in the statutory liquidity ratio
  4. Increase in the population of the country

Answer

Correct Answer

Increase in the banking habit of the population

Explanation

The money multiplier falls when reserve requirements (CRR, SLR) rise and rises when people hold more of their money as bank deposits rather than as currency, i.e., with improved banking habits. Population size does not directly affect it.

Topics: indian economy, money and banking, money multiplier, money supply