Question 11

The money multiplier indicates how much the money supply changes for a given change in reserves. It is largely determined by two main factors:

1. Reserve Ratios (CRR and SLR): The higher the reserve requirements (Cash Reserve Ratio - CRR, and Statutory Liquidity Ratio - SLR) imposed on banks by the central bank, the less money banks have available to lend out. This reduces their credit creation capacity, and thus decreases the money multiplier. Therefore, an increase in CRR or SLR would decrease the money multiplier.

2. Public's Currency Holding (Banking Habit): If people have a greater banking habit, they tend to deposit more of their cash into banks rather than holding it as physical currency. When cash is deposited in banks, it becomes part of the banking system's reserves, enabling banks to create more credit (subject to reserve requirements) through the fractional reserve banking system. This increased flow of deposits through the banking system amplifies the money creation process, thereby increasing the money multiplier.

Option A (Increase in the Cash Reserve Ratio in the banks) would decrease the money multiplier.

Option B (Increase in the Statutory Liquidity Ratio in the banks) would decrease the money multiplier.

Option D (Increase in the population of the country) does not directly or inherently increase the money multiplier. While it might lead to a larger economy, it doesn't automatically alter the factors that determine the multiplier's value.

Therefore, an increase in the banking habit of the people would increase the money multiplier.