Q. Consider the following statements regarding instruments used by RBI to control money supply:
1.An increase in the Cash Reserve Ratio (CRR) by the RBI leads to a reduction in money supply in the economy.
2.The RBI uses moral suasion and margin requirements as qualitative tools to influence lending behaviour of commercial banks.
Which of the statements given above is/are correct?
Answer: C
Notes:
Explanation:
- Increasing CRR reduces the amount available with banks for lending, thus reducing money supply.
- Moral suasion and margin requirements are qualitative tools used by RBI to encourage or discourage specific lending behaviour.
Source: Laxmikant (Polity)
