Money multiplier can be expressed as ______.

Question

Question

This question was previously asked in

SSC CGL 2022 Tier-I Official Paper (Held On : 05 Dec 2022 Shift 3)

Answer 1

The correct answer is 1/ Cash Reserve Ratio.Key Points

The money multiplier can be expressed as 1/ Cash Reserve Ratio.
The money multiplier is the amount of money created by commercial banks for a given fixed amount of base money and reserve ratio.
An increase in a cash reserve ratio prevents the banks from lending more money and reduces the money multiplier.
- An increase in the banking habit of the population will increase lending, thereby will lead to more deposits in the banking system, hence increasing the money multiplier.
- Even if there is an increase in the population of the country, the money multiplier in an economy does not necessarily increase.

Additional Information

The statutory liquidity ratio means ensuring that commercial banks are solvent and that they invest in government securities.
- By sapping market liquidity, an increase in the SLR limits the bank's ability to lend while also aiding in the management of inflation.
- The Reserve Bank of India (RBI) utilizes the statutory liquidity ratio as a tool for its monetary policy to evaluate the liquidity available to banks.