Final answer:
CRR, or Cash Reserve Ratio, is the percentage of total customer deposits that commercial banks need to keep as cash reserves with the central bank..
Step-by-step explanation:
CRR, or Cash Reserve Ratio, is a financial instrument used by central banks to regulate the liquidity in the economy. It is the percentage of total customer deposits that commercial banks need to keep as cash reserves with the central bank.
When the central bank increases the CRR, it reduces the amount of money that commercial banks can lend. This reduces the money supply in the economy and helps control inflation. On the other hand, when the central bank decreases the CRR, it increases the amount of money that commercial banks can lend, thus boosting the money supply and stimulating economic growth.
For example, if the central bank sets the CRR at 10%, it means that banks need to keep 10% of their total deposits as cash reserves with the central bank. So, if a bank has $100 million in customer deposits, it must keep $10 million as cash reserves.