Cash reserve ratio (CRR) affects the lending capacity of banks.

5. Cash reserve ratio (CRR) affects the lending capacity of banks.

Ans. By the Banking Act, commercial banks have to maintain a certain percent (3 percent to 15 percent) of cash with Central bank (RBI) as reserves against their demand and time deposits. This amount cannot be used by banks for lending activities.

If the CRR is increased the amount available for lending gets reduced and vice versa. Thus, the CRR affects the lending capacity of the banks.

6. Microeconomics deals with allocation of resources.

Ans. Microeconomics is concerned with the study of economic behavious of small individual economic units of an economy. Resources allocation means utilisation of resources for the production of various goods and services. The study of microeconomics is maily confined to resource allocation.

Microeconomics explains how relative prices of commodities and factors of production determine the allocation of resources. Allocation or resources determines what goods are to be produced, how the goods are to be produced and distributed, etc. Microeconomics also examines the efficiency in the allocation of resources and economic welfare of society.

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