Q59: MZPSC Prelims 2025 GS: Previous Year Question with Answer

Consider the following potential effects on economic development when the central bank decides to lower the Cash Reserve Ratio (CRR) in a developing economy: (i) It is likely to inject additional liquidity into the banking system, potentially increasing banks’ capacity for credit creation. (ii) It could lead to a reduction in market interest rates, making borrowing cheaper for businesses and consumers. (iii) It might stimulate aggregate demand, potentially leading to increased investment and consumption. (iv) It invariably guarantees a rapid acceleration of real economic growth by ensuring optimal allocation of credit to productive sectors. Which of the statements given above are conceptually sound effects of lowering CRR, but not necessarily a guaranteed outcome in all economic contexts?