Multiple choice

In order to encourage investment in the country, the RBI may:

  1. Reduce CRR

  2. Increase CRR

  3. Sell Securities in the open market

  4. Increase Bank Rate

Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

To encourage investment, RBI reduces CRR (Cash Reserve Ratio), which frees up more funds for banks to lend. Lower CRR = more money available for lending = lower interest rates = more investment. Conversely, increasing CRR, selling securities, or increasing Bank Rate would REDUCE money supply and DISCOURAGE investment.