Which of the following is a tool used by the RBI to control money supply?

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Question: Which of the following is a tool used by the RBI to control money supply?

Options:

Correct Answer: Cash Reserve Ratio (CRR)

Solution:

The Cash Reserve Ratio (CRR) is a tool used by the RBI to control the money supply by regulating the amount of funds banks must hold in reserve.

Which of the following is a tool used by the RBI to control money supply?

Which of the following is a tool used by the RBI to control money supply?

Step 1: Understand what the RBI is. The RBI stands for the Reserve Bank of India, which is the central bank of India.
Step 2: Learn about money supply. Money supply refers to the total amount of money available in the economy at a particular time.
Step 3: Know that the RBI controls the money supply in the economy using various tools.
Step 4: One of these tools is called the Cash Reserve Ratio (CRR).
Step 5: The CRR is the percentage of a bank's total deposits that must be kept in reserve with the RBI.
Step 6: By changing the CRR, the RBI can control how much money banks can lend to people and businesses.
Step 7: If the RBI increases the CRR, banks have less money to lend, which reduces the money supply. If it decreases the CRR, banks have more money to lend, which increases the money supply.

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