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Question

When the Reserve Bank of India announces an increase of the Cash Reserve Rate, what does it mean? 

A The commercial banks will have less money to lend Correct Answer Incorrect Answer
B The Reserve Bank of India will have less money to lend Correct Answer Incorrect Answer
C The Union Government will have less money to lend Correct Answer Incorrect Answer
D The commercial banks will have more money to lend Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

CRR or the Cash Reserve Ratio is that ratio of the total deposits held by a bank which it has to keep with the central bank of country.  CRR refers to the percentage of deposits banks have to keep as reserve (in cash). This reserve sum is not available for banks for lending and thus if the CRR increases, banks will have less money to lend. 

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