2019 GS Paper I, all questions
UPSC Prelims 2019 · GS Paper I
Question 90: Economy and Social Development
The money multiplier in an economy increases with which one of the following?
aIncrease in the cash reserve ratio
bIncrease in the banking habit of the population
cIncrease in the statutory liquidity ratio
dIncrease in the population of the country
AnswerUPSC’s answer is (b).
The money multiplier is the number of times the banking system multiplies base money, and it rises when people hold less cash and deposit more in banks. With greater banking habit, the currency-deposit ratio falls, banks have more deposits and can lend more, so the multiplier rises. A higher CRR or SLR locks up more of deposits and lowers the multiplier, and population size has no direct effect.
Why each option is right or wrong
- (a) A higher cash reserve ratio lowers the multiplier.
- (b) Correct: more banking habit lowers the cash held and raises the multiplier.
- (c) A higher statutory liquidity ratio lowers the multiplier.
- (d) Population size has no direct effect on the multiplier.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2019, General Studies Paper I, Series A. The paper on upsc.gov.in.