The money multiplier in an economy increases with which one of the following
- Increase in the cash reserve ratio
- Increase in the banking habit of the population
- Increase in the statutory liquidity ratio
- Increase in the population of the country
Explanation
Option (b) is correct
- The money multiplier reflects the maximum amount of money that banks can create with each unit of reserves. If more people deposit money in banks, it increases the funds available for banks to lend, thus increasing the money multiplier.
Option (a) is incorrect
- Increase in the cash reserve ratio: This would decrease the money multiplier since a higher CRR means banks have to keep more reserves and can lend less.
Option (c) incorrect
- Increase in the statutory liquidity ratio: Similar to CRR, an increase in the statutory liquidity ratio would reduce the money multiplier as banks have to hold more liquid assets.
Option (d) is incorrect
- Increase in the population of the country: While a larger population might increase the demand for loans, it does not directly affect the money multiplier unless it translates into increased deposits.
