1.5. have direct impact on GDP. ?

1.5. (A) Impact of the cash reserve ratio on Indian economy: ? Impact on the interest rates: Theinterest rates are the charge of a loan. If there is a scramble in the CRR then the banks must deposit in additional amount of cash with an RBI in an economy, or if convenient is any decrease in the CRR then the banks determination deposit will less amount of the cash with an RBI. Its due to CRR banks may possibly have extra or fewer cash for a lending the interest rate.

? Impact on the investment: In thefirm of an operational in the economy require to money for the extension and for various purposes. If the interest rates are elevated appropriate to increase a CRR, and it the entire firm may not get the money from the banks. Due to this expansion of the economy is slows downwards in the investment foundation.? Impact on common public: Public might be take loan for a availing some services.

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Due to the high interest rates the public may consume less in the economy. If the CRR is increased rate then the public will consume less and they will have direct impact on GDP. ? Impact Imports and Exports:If the interest rates are elevated firms and they will consume less amount and they concentrated their development plans in the market. It will formulate the manufacture of goods and services is low, because the manufacture has decreased, and the People will obtain from foreign markets to get their necessary products, so they have to attentive while exporting and importing products. Imports will increase and exports will decreases in an economy, it ultimately and it will put downward demands on a GDP by dropping the Exports.1.5.

(B) What is the role of CRR in the banking system? The RBI uses CRR as a means to control the money supply in the banking system. When the money supply is on the higher side, then the RBI will increase the CRR to reduce the supply and vice versa. The RBI will control the CRR to give a better performance in the banking system and it will give a good solution to decrease their money supply in the economy.EXAMPLE FOR CRR: If you deposit the money, say Rs.

1000 in your bank. Then the bank receives Rs 1000 and has to put some percentage of it with the RBI. If the existing CRR is 6% then they will have to deposit Rs 60 with RBI and they are left with Rs 940.

Then your bank can not be using this amount of Rs 60 for its commercial purpose. This Rs 60 is deposited in current account with RBI, so the current CRR is 4%. If RBI cuts CRR in its next monetary policy review which is scheduled on 2nd, December then it means the banks will be left with more money to lend or to invest. The RBI can?t take the crr money for its own purpose because it was only fixed as a current account. So, more money can be released into the economy which stimulates in the economic growth.

1.5. (C) Cash reserve ratio effect on the interest rate:? CRR like the name suggests in the ratio of cash that the banks need to keep reserved with the central bank. The CRR can also be defined as the proportion of deposits the money that the banks need to keep with the reserve bank of India. ? The main purpose of CRR is that to protect the risk of the banks depositors to an extent and to ensure that the bank should maintain some liquid funds in the bank.


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