{"id":1724,"date":"2024-03-29T13:52:22","date_gmt":"2024-03-29T08:22:22","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1724"},"modified":"2024-04-03T07:14:44","modified_gmt":"2024-04-03T01:44:44","slug":"q-the-money-multiplier-in-an-economy-increases-with-which-one-of-the-following-2","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-the-money-multiplier-in-an-economy-increases-with-which-one-of-the-following-2","title":{"rendered":"Q. The money multiplier in an economy increases with which one of the following?"},"content":{"rendered":"\n<ul class=\"mcq wp-block-list\">\n<li>Increase in the cash reserve ratio<\/li>\n\n\n\n<li>Increase in the banking habit of the population<\/li>\n\n\n\n<li>Increase in the statutory liquidity ratio<\/li>\n\n\n\n<li>Increase in the population of the country<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: (b) Increase in the banking habit of the population<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"notes-hd-66066c5d66828\">Notes:<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The multiplier effect is an economic term, referring&nbsp;<strong>to the proportional amount of increase, or decrease, in final income that results from an injection, or withdrawal, of capital in effect<\/strong>. It measures the<strong>&nbsp;impact that a change in economic activity<\/strong>\u2014like investment or spending\u2014will have on the total economic output of something.&nbsp;<\/li>\n\n\n\n<li><strong>Increase in Banking habits of the people can lead to increase in money multiplier in an economy<\/strong>.\n<ul class=\"wp-block-list\">\n<li>When a customer makes a deposit into a\u202fshort-term deposit account, the\u202fbanking institution\u202fcan lend one minus the reserve requirement to someone else. While the original depositor maintains ownership of their initial deposit, the funds created through lending are generated based on those funds. If a second borrower subsequently deposits funds received from the lending institution, this raises the value of the money supply even though no additional physical currency actually exists to support the new amount.&nbsp;&nbsp;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>An increase in banking activity will lead to more money in the bank\u2019s hands in the form of Time Deposits&nbsp; (FD, RD), Demand Deposits (Savings Bank Account), Cash, etc, thus increase in banking habits of the&nbsp;people will increase the money multiplier.<\/strong>\n<ul class=\"wp-block-list\">\n<li>Banks create money by&nbsp;<strong>making loans<\/strong>. A bank loans or invests its excess reserves&nbsp;to earn more&nbsp;interest.&nbsp;When people start&nbsp;depositing more into banks. The&nbsp;banks can&nbsp;lend even more.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>Increase in the Cash Reserve Ratio in the banks, increase in the Statutory Liquidity Ratio in the banks and increase in the population of the country will not increase&nbsp;money multiplier.&nbsp;<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Answer: (b) Increase in the banking habit of the population Notes:<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[54],"class_list":["post-1724","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-54"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":54,"label":"2019"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1724","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1724"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1724\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1724"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1724"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1724"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1724"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}