Question

Which of the following is an impact of a decrease in Cash Reserve Ratio on loanable funds?

Options

• Loanable funds will increase

• Loanable funds will decrease

• Loanable funds remain unchanged

• Banks will impose restrictions on loans

Answer 1

Loanable funds will increase

Explanation:

A reduction in the Cash Reserve Ratio (CRR) requires banks to keep a smaller portion of their deposits as reserves with the Central Bank. As a result, banks have more funds available for lending, which increases the supply of loanable funds in the economy.