economics medium True/False

The money multiplier in an economy is directly proportional to the Cash Reserve Ratio (CRR) maintained by commercial banks.

  1. True
  2. False

Answer: False

The money multiplier is inversely related to the reserve ratio (including CRR). When banks are required to hold a higher percentage of deposits as reserves, they have less money available to lend out. This reduces the credit creation capacity of the banking system, thereby shrinking the overall money multiplier.

Topic Macroeconomics - Money
Exam Relevance Banking, SSC, UPSC
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