OS Book written by Galvin et all states that if page size is 4KB and size of virtual space is 32 bits then 2^(32-12) page entries would be required which is too huge to store in memory!! Therefore it recommends to break it down by paging the inner page table as well. Now my question is how does that reduce memory requirements? Shouldn't inner page table and outer page table both be in memory and just the computational requirements reduce because inner page table can now be indexed quickly with the help of outer page table?? 
Hierarchical Paging memory requirements
operating systems;paging
Have you read Wikipedia's article on page tables?There are two ways that a multi-level page table saves memory. First, you don't need to create parts of the page table for memory that isn't being used by the process: you only create the subtables for the parts of the virtual address space that are in use. Second, if you want to really live by the seat of your pants, you can use your virtual memory system to swap parts of the page table out of physical memory.