The money multiplier in an economy increases with which one of the following? ​

The correct answer is C. The money multiplier is roughly (1 + c)/(r + c), where c is the currency-deposit ratio and r is the reserve ratio. It is the ratio of broad money to high-powered money. When people use banks more, they hold less cash outside the system, so c falls and the multiplier rises. Wider banking habit also brings more deposits into the banking system.

• A is wrong. A higher Cash Reserve Ratio (CRR) means banks must park more deposits with the RBI as non-lendable reserves. Less credit gets created, so the multiplier falls.
• B is wrong. A higher Statutory Liquidity Ratio (SLR) forces banks to hold more government securities and cash. This reduces the funds available for lending and lowers the multiplier.
• D is wrong. Population growth does not directly change the deposit-creation process. The multiplier depends on the behaviour of banks and the public, not on headcount.

This sits under monetary policy and the transmission mechanism, a core Economy topic. For Mains, it links to financial inclusion, the role of digital payments in deepening banking, and how RBI uses CRR and SLR as quantitative tools.

Trap: Candidates often treat any policy tool that "increases liquidity" as raising the multiplier. CRR and SLR are reserve requirements, and raising them always reduces the multiplier.