Question : Money multiplier uses which of the following monetary instruments for its calculation?
Option 1: Repo rate
Option 2: Cash Reserve Ratio
Option 3: Reverse repo rate
Option 4: Bank rate
Correct Answer: Cash Reserve Ratio
Solution : The correct option is the Cash Reserve Ratio .
The money multiplier relies on the Cash Reserve Ratio (CRR) as a key monetary instrument for its calculation. CRR is the percentage of bank deposits that must be held in reserve with the central bank, influencing the amount of money banks can create through credit creation.
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