Detailed Explanation:

Answer: Option 3 — Increase in the banking habit of the people.

The money multiplier depends on the reserve ratio and the proportion of money held as deposits versus cash. When more people deposit money in banks instead of holding cash, banks receive greater reserves to lend out, which amplifies the credit creation process and increases the money multiplier.

❌ Option 1 – Incorrect: An increase in Cash Reserve Ratio (CRR) reduces the lending capacity of banks as they must hold more reserves with the RBI, thereby decreasing the money multiplier.

❌ Option 2 – Incorrect: An increase in Statutory Liquidity Ratio (SLR) requires banks to keep more deposits in liquid assets like government securities, reducing their lending capacity and thus decreasing the money multiplier.

✅ Option 3 – Correct: Greater banking habits mean more deposits flow into the banking system, enabling banks to lend more and create additional credit, thereby increasing the money multiplier.

❌ Option 4 – Incorrect: Population increase alone does not affect the money multiplier unless it is accompanied by increased banking penetration or deposit mobilization.

📝 Short Notes: Money Multiplier

• Definition: The money multiplier is the ratio of the total money supply to the monetary base (reserves), indicating how much the money supply can expand through credit creation.
• Formula: Money Multiplier = 1 / Reserve Ratio (simplified version considering only reserve requirements)
• Factors Increasing Money Multiplier: Lower CRR/SLR, higher deposit ratio (more banking habits), lower currency-deposit ratio
• Factors Decreasing Money Multiplier: Higher CRR/SLR, preference for cash holdings, lower public confidence in banks
• Cash Reserve Ratio (CRR): The percentage of net demand and time liabilities (NDTL) that banks must maintain as cash reserves with RBI; currently around 4.5%
• Statutory Liquidity Ratio (SLR): The percentage of NDTL that banks must maintain in liquid assets like government securities, gold, or cash; currently around 18%
• Credit Creation: The process by which banks multiply deposits through successive lending cycles, limited by reserve requirements and public cash preferences