The money multiplier in an economy increases with which one of the following?

UPSC Prelims & Mains Questions

Increase in the Cash Reserve Ratio in the banks

Increase in the Statutory Liquidity Ratio in the banks.

Increase in the banking habit of the people.

Increase in the population of the country

Correct Answer : Increase in the banking habit of the people.

Note :

The money created by the Central Banks is the monetary base, also known as high-powered money. Banks create money by making loans. A bank loans or invests its excess reserves (Money in excess of reserve requirements that banks have to maintain like CRR & SLR) to earn more interest.

A one-rupee increase in the monetary base causes the money supply to increase by more than one rupee. The increase in the money supply is the money multiplier.

Increase in CRR & SLR will contain the amount that banks can lend & hence create more money, thus bringing Money Multiplier down.

Increase in banking activity will lead to more money in bank’s hands in the form of Time Deposits (FD, RD), Demand Deposits (Savings Bank Account), Cash, etc, thus Increase in banking habit of the people will increase money multiplier.

Merely an increase in the population of the country will not lead to increase in money multiplier if the increased population in unbanked & is financially excuded.

Year : 2021

Category : General Studies

Recently Updated in UPSC Questions

With reference to 'IFC Masala Bonds', sometimes seen in the news, which of the statements given below is/ are correct? (2016)

1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.

2. They are rupee-denominated bonds and are a source of debt financing for the public and private sector.

Select the correct answer using the code given below:

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Correct Answer : Option (C) - Both 1 and 2

Note :

* The World Bank Group, which is a vital source of financial and technical assistance to developing countries, consists of five distinct yet complementary organizations, viz.,

* International Bank for Reconstruction and Development (IBRD),

* International Development Association (IDA),

* International Finance Corporation (IFC), hence, statement 1 is correct.

* Multilateral Investment Guarantee Agency (MIGA),

* International Centre for Settlement of Investment Disputes (ICSID).

* Masala Bonds are rupee-denominated borrowings issued by Indian entities in overseas markets. Masala means ‘spices’ and the term was used by International Finance Corporation (IFC) to popularise the culture and cuisine of India on foreign platforms. The objective of Masala Bonds is to fund infrastructure projects in India, fuel internal growth via borrowings and internationalize the Indian currency. Hence, statement 2 is correct.

Year : 2022

Category : General Studies

Consider the following statements:

1. The Accelerated Irrigation Benefits Programme was launched during 1996-97 to provide loan assistance to poor farmers.

2. The Command Area Development Programme was launched in 1974-75 for the development of water-use efficiency,

Which of the statements given above is/ are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Correct Answer : Option (B) - 2 only

Note :

The Accelerated Irrigation Benefits Programme (AIBP) was launched in 1996 as a central assistance programme, with the aim to accelerate creation of irrigation potential.

The Command Area Development (CAD) programme was initiated in 1974-75 with a view to bridging the gap between the potential created and its utilisation and optimising agricultural productivity through better management of land and water use in the command areas served by selected major and medium irrigation projects.

Year : 2015

Category : General Studies