Discussion
What happens when CRR is increased?
Answer: D
Correct answer: All of the above
All three follow from raising the cash reserve ratio. Banks must hold a larger fraction of their deposits with the RBI, so less is available to lend; since lending creates deposits, the money supply contracts.
With less credit available its price rises, which is what the second option describes - demand for money now exceeds the reduced supply. And with less money chasing the same goods, inflationary pressure eases. The three statements are successive links in the same chain rather than alternatives, which is why the combined answer is correct.
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