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There is something called a CRR - Cash Reserve Ratio. It is the amount of money that the member banks have to keep deposited with the central bank for every rupee that they receive as a deposit.
Lets say you deposit Rs. 1000/- in your account and the CRR is 10% then your bank must deposit Rs. 100/- with RBI and can lend the remaining 900 rupees only.
When the central bank reduces the CRR the amount of money with the banks would increase which they would lend at reduced rates to the public which in turn would increase the money circulation.
Wiki User
∙ 15y ago
Wiki User
∙ 8y agoBanks can create money just by saying so (out of thin air) and lend this money to borrowers.
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Why is the supply of money in an economy not solely determined by central bank?
The supply of money IS controlled by the central bank. However, in some countries the politicians interfere with the Central Bank.
What refers to the adjustment of an economy's money supply by central bank?
A+ answer: monetary policy
What refers to the adjustment of an economy's money supply by a central bank?
A+ answer: monetary policy
What statement about fiscal policy is not true?
It refers to the adjustment of an economy’s money supply by a central bank.
How do central banks impact the global economy?
They influence the national money supply,which affects the volume of international trade.
Why is the supply of money in an economy not solely determined by central bank?
The supply of money IS controlled by the central bank. However, in some countries the politicians interfere with the Central Bank.
What refers to the adjustment of an economy's money supply by central bank?
A+ answer: monetary policy
What refers to the adjustment of an economy's money supply by a central bank?
A+ answer: monetary policy
What about fiscal policy is not true?
It refers to the adjustment of an economy’s money supply by a central bank.
What statement about fiscal policy is not true?
It refers to the adjustment of an economy’s money supply by a central bank.
How do central banks impact the global economy?
They influence the national money supply,which affects the volume of international trade.
Why do the actions of central banks have an important effect on the global economy?
Control of the money supply determines how much money is available for international trade.
How does increasing money supply affect expansionary monetary policy?
Expansionary Monetary Policy is adopted by the monetary authorities to increase the money supply of an economy. If money supply is increasing, and central bank adopts an expansionary monetary policy, it would result in inflationary pressures.
Which of these can affect the economy by increasing or decreasing the money supply?
The Federal Reserve Board can affect the economy by increasing or decreasing the money supply.
Explain how different monetary policies affect the money supply in the economy?
"Explain how different monetary policies affect the money supply in the economy?"
What is a money supply?
The total supply of money in circulation in a given country's economy at a given time.
What determines the size of the multiplier in an economy?
1) Demand for money (economy growth etc.) 2) Monetary policy of central bank. So these two sides come into equilibrium decision of money supply. More strictly local currency is supplied by central bank - and demand for money is secondary (of course with some issues).
