How do we control excess demand with the help of CRR?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: CRR is increased
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CRR (Cash Reserve Ratio) is the percentage of a bank’s total deposits that must be kept with the RBI in cash form.
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When there is excess demand (leading to inflation), the RBI increases CRR.
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This means banks have less money to lend to people and businesses.
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Less lending → Less spending → Control over excess demand and inflation.