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Answer the following. (Class 12 Economics SQP 2026-27, Q13B)

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EconomicsCBSE Class 12 · Sample paper, session 2026-27 · 4 marks · Short answer

CBSE Class 12 Economics sample paper 2026-27: question 13(B)

From the official CBSE sample question paper for 2026-27, section A, question 13(B), for 4 marks. Try it first; the hints and our step-by-step solution are below.

Q13(B) · 4 marks · Short answerCompetency-basedMoney and Banking

Answer the following.

  1. (I)

    Define Cash Reserve Ratio.

    1 mark
  2. (II)

    In the process of credit creation, the Cash Reserve Ratio (CRR) fixed by the Reserve Bank of India (RBI) plays a crucial role. On 6th June 2025, the RBI reduced the CRR by 100 basis points.
    Assuming the entire banking system functions as a single bank and all transactions are routed through banks, analyse the impact of this change on the total money creation in the banking system.

    3 marks

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2026-27.

Hints

Open one hint at a time and try again before the next.

Hint 1

Money multiplier = 1/CRR.

Hint 2

A lower CRR leaves more of each deposit free to lend.

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. (I) Cash Reserve Ratio is the minimum percentage of a bank's net demand and time liabilities (deposits) that it must keep with the central bank in the form of cash.

    1 mark

  2. (II) Total credit creation depends on the initial deposits and the CRR: total deposits = initial deposits × 1/CRR.

    1 mark

  3. (II) With primary deposits unchanged, a 100 basis-point cut in CRR leaves banks with more funds to lend. This raises their lending capacity and the money multiplier (1/CRR), so total money (credit) creation in the banking system increases.

    2 marks

Answer: (I) CRR is the share of deposits banks must keep with the RBI as cash. (II) A lower CRR raises lendable funds and the money multiplier, so total money creation rises.

Where the marks are

  • Definition of CRR (1)
  • Impact of a CRR cut on money creation (3)

Revise the chapter

  • Chapter: Money and Banking (notes, formulas, where marks are lost and every past question)
Practise this chapterBoard-style questions from Money and Banking, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2026-27: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.