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UPSC PYQPrelims 2021

Civil Services Examination · Question 11

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

  1. Increase in the Cash Reserve Ratio in the banks
  2. Increase in the Statutory Liquidity Ratio in the banks
  3. Increase in the banking habit of the people
  4. Increase in the population of the country
Show answer & explanation

Answer: (C) Increase in the banking habit of the people

Explanation

More banking habit means less currency held by the public and more deposits available for credit creation, which raises the multiplier. Higher CRR/SLR reduce it.