Which among the following statement(s) is/are true with respect to the Indian economy?

1. Demonetisation is the act of stripping money of its legal tender status.
2. An increase in the Cash Reserve Ratio by the Reserve Bank of India increases the money multiplication in the market.
3. Haircut reflects the borrower's perception of the risk of falls in the value of assets.

Select the correct option:

Question

Which among the following statement(s) is/are true with respect to the Indian economy?

1. Demonetisation is the act of stripping money of its legal tender status.

2. An increase in the Cash Reserve Ratio by the Reserve Bank of India increases the money multiplication in the market.

3. Haircut reflects the borrower's perception of the risk of falls in the value of assets.

Select the correct option:

Quintessence Classes · Accepted Answer

The correct answer is 1 only. Analysis of the Statements1. Demonetisation is the act of stripping money of its legal tender status.TRUE. Demonetisation is a drastic monetary step where a currency unit's status as legal tender is withdrawn. It occurs when there is a change of national currency or when the government intends to curb "black money" or counterfeiting.2. An increase in the Cash Reserve Ratio (CRR) by the Reserve Bank of India increases the money multiplication in the market.FALSE. The Cash Reserve Ratio (CRR) is the percentage of total deposits that commercial banks must keep as cash with the RBI.If the RBI increases the CRR, banks have less money available to lend to consumers.This leads to a decrease in the money supply and a lower money multiplier effect.Money multiplication is inversely related to the reserve ratio.3. Haircut reflects the borrower's perception of the risk of falls in the value of assets.FALSE. While the definition of a "haircut" involves the risk of falling asset values, the perception belongs to the lender, not the borrower. A haircut is the difference between the market value of an asset used as loan collateral and the actual amount of the loan granted. The lender applies this "discount" to protect themselves against potential fluctuations in the asset's price.

Answer

1 and 2 only

Answer

2 and 3 only

Answer

1 and 3 only

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JKPSC JKAS 2022 Prelims

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