What will happen if the RBI increases the Cash Reserve Ratio?

All other banks will decreases its interest rate

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All other banks will increase its interest rate

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The value of money multiplier increases

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The value of money multiplier decreases

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Solution

The correct option is C. The value of money multiplier decreases

Money Multiplier $= \frac{1}{C R R}$

So, When CRR is increased , it decreases money supply, Increases interest rates on home loans, car loans etc. and in inter-bank market, Increases demand for money and decreases inflation.

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