Cash reserve ratio is a _______ tool to control money supply.
I. Qualitative
II. Quantitative
Answer & explanation
Correct answer: option 1
- The Cash Reserve Ratio (CRR) is a monetary policy tool used by central banks to regulate the amount of cash that commercial banks must hold as reserves. It is a crucial instrument in controlling the money supply and influencing inflation and liquidity in the economy.
- When a commercial bank receives deposits from its customers, it is required to hold a certain percentage of these deposits as reserves in the form of cash with the central bank. The CRR is expressed as a percentage of the total deposits held by the bank, and it may vary from one country to another or be set by the central bank based on the prevailing economic conditions.
- Since, it is measured cash reserve ratio is an quantitative tool of macroeconomic policy.