The money multiplier in an economy increases with which one of the following?
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Answer: B. The money multiplier shows how much total money supply grows from each rupee of base money created by the RBI. When more people use banks, less cash is kept at home, so banks get more deposits to lend again and again. This raises the multiplier.
Watch for: Students think any 'increase' grows money supply and miss that CRR and SLR lock up funds.
Why the other options are wrong
- A. Wrong because a higher CRR leaves banks less to lend, lowering the multiplier.
- C. Wrong because a higher SLR also reduces lendable funds.
- D. Wrong because population size by itself does not raise the multiplier.
Source to check: NCERT Class 12 Introductory Macroeconomics, Chapter 3 'Money and Banking'
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.