The money multiplier in an economy increases with which one of the following?
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Answer: C. The money multiplier depends on how much money stays in banks and can be lent out. When people use banks more and keep less cash, banks can lend more, so the multiplier rises. Higher CRR or SLR reduces lendable funds and lowers it.
Watch for: Students confuse reserve ratios with money supply growth; higher reserves shrink the multiplier.
Why the other options are wrong
- A. Wrong because a higher CRR reduces lendable funds and lowers the multiplier.
- B. Wrong because a higher SLR locks up funds and lowers the multiplier.
- D. Wrong because population size does not by itself change 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.