Question
UPSC Prelims 2021 Question:
The money multiplier in an economy increases with which one of the following?
Answer (Detailed Solution Below)
Option 3: Increase in the banking habit of the people
Detailed Solution
Explanation:
- The money multiplier in an economy will increase with the increase in banking habits of the people as it will increase the monetary resources of the banks in the form of various deposits. These deposits can be used by banks to stimulate further investments in the economy.
- An increase in the population of the country will not necessarily lead to an increase in money multiplier if the increased population is unbanked & is financially excluded.
- Increase in Cash Reserve Ratio and Statutory Liquidity Ratio will restrict the amount that the banks can lend. Thus, it will bring the money multiplier down in the economy.
Therefore, option (3) is the correct answer.
Subject: Economics | Money and Banking
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