UPSC CSE Prelims
Question 61
The money multiplier in an economy increases with which one of the following?
View correct answer and explanation
Correct answer: C
Correct Option: C (Increase in the banking habit of the people)
Explanation: A higher share of money deposited in banks rather than retained as cash increases the deposit-creation process and hence the money multiplier, other things equal.
Option-wise Analysis:
A. Incorrect-Higher CRR holds back reserves from lending and tends to reduce the multiplier.
B. Incorrect-A higher SLR also locks funds in liquid securities and can constrain credit creation.
C. Correct-greater banking/deposit habits support a larger credit/deposit multiplier.
D. Incorrect-Population growth alone has no direct mechanical multiplier effect.