The money multiplier in an economy increases with which one of the following?

The money multiplier in an economy increases with which one of the following?  (UPSC CSE 2021)  

1. Increase in the Cash Reserve Ratio in the banks
2. Increase in the Statutory Liquidity Ratio in the banks
3. Increase in the banking habit of the people
4. Increase in the population of the country

Answer: C

Explanation

The money multiplier refers to the extent to which the money supply in an economy increases as a result of a given increase in high-powered money (reserve money). It is determined by factors such as the Cash Reserve Ratio (CRR), the Statutory Liquidity Ratio (SLR), and the currency–deposit ratio (the public’s preference for holding cash versus deposits). An increase in the banking habit of the people reduces the currency–deposit ratio, as people prefer to keep money in banks rather than in cash. When more money is deposited in banks, banks can lend more, leading to greater credit creation and a higher money multiplier.

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