CBSE 2021 Class 12 Economics Term 1 Paper

Question : 26

Total: 60

Read the following statements carefully and choose the correct alternative :
Statement 1: Reserve Bank of India keeps a certain percentage of deposits as reserve to avoid 'too much lending to public'.
Statement 2 : The reserve deposit ratio acts as a deterrence to the amount of credit created by the commercial banks.

Statement 1 is true and statement 2 is false
Statement 2 is true and statement 1 is false
Both the statements are true
Both the statements are false

Solution:

(c) Both the statements are true
Explanation: A part of the bank's deposit needs to be maintained as a reserve to ensure that it is able to meet liabilities in case of sudden withdrawals and that amount or ratio is know as cash reserve ratio or reserve deposit ratio. Another objective of CRR is to keep inflation under control A lower reserve ratio requirement gives bank more money to land at lower interest rates, which makes borrowing more attractive to customers. Increase in CRR will reduce credit supply or vice-versa.

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