The correct answer is (b).
CRR stands for Cash Reserve Ratio. It is the percentage of the total deposits that banks are required to keep with the Reserve Bank of India (RBI). When the RBI increases the CRR, banks have to keep more money with the RBI and less money available to lend to customers. This reduces the amount of money in circulation in the economy, which is known as liquidity.
A reduction in liquidity can have a number of effects on the economy. It can make it more difficult for businesses to get loans, which can lead to slower economic growth. It can also lead to higher interest rates, as banks will need to charge more to compensate for the fact that they have less money to lend.
However, a reduction in liquidity can also be used to control inflation. When there is too much money in circulation, prices tend to rise. By reducing liquidity, the RBI can help to bring down inflation.
In conclusion, an increase in CRR by the Reserve Bank of India results in a reduction in liquidity in the economy. This can have a number of effects on the economy, including slower economic growth, higher interest rates, and lower inflation.