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| 1. |
Explainthe role of CashReserve Rationin controlling credit creation. |
| Answer» SOLUTION :The role of cash RESERVE ratio in controlling credit creation is mentioned below:1)Cash Reserve Ratio or CRR is the percentage of deposits which commercial banks keep with the central banks, in accordance with the law.2) If the CRR is INCREASED, the banks have to keep a HIGHER share of deposits in the central banks.3)Â This will reduce the FUNDS kept with them to give out as loans.4)Â Thus, the level of credit creation reduces. | |