If RBI reduces the cash reserve Ratio what will happen to credit creation?

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none

There will be no impact

It will decrease

It will Increase

answer is C.

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Detailed Solution

Cash Reserve Ratio is the share of a Bank’s total deposits that is mandated by the RBI to be maintained with the latter as Reserves in the form of Liquid cash. Due to the reduction in the requirements of the CRR banks will have more funds with them to promote their lending (credit creation), which will ultimately lead to an increase in their lending.

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