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How does Credit Creation Increase?
18. How does Credit Creation Increase?
- If RBI increases cash reserve
- If RBI increases the cash reserve ratio
- If RBI reduces the cash reserve ratio
- If RBI reduces cash reserve
Answer: C) If RBI reduces the cash reserve ratio
Explanation:
Because of a decrease in the prerequisites of the CRR banks will have more assets with them to advance their loaning (credit creation), which will eventually prompt an expansion in their loaning.