How do we control excess demand with the help of CRR?

CRR is increased 

The correct answer is Option 3: CRR is increased

• CRR (Cash Reserve Ratio) is the percentage of a bank’s total deposits that must be kept with the RBI in cash form.

• When there is excess demand (leading to inflation), the RBI increases CRR.

• This means banks have less money to lend to people and businesses.

• Less lending → Less spending → Control over excess demand and inflation.