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

The money multiplier in an economy increases with which one of the following?
  1. Increase in the Cash Reserve Ratio in the banks
  2. Increase in the Statutory Liquidity Ratio in the banks
  3. Increase in the banking habit of the people
  4. Increase in the population of the country

Solution

The money multiplier increases as the banking habit of people improves, because more cash is deposited with banks, increasing the base for credit creation. Higher CRR/SLR reduces the multiplier.

Asked in: UPSC Prelims 2021

Practice more Banking & Financial System questions on Aicharya