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प्रश्न
If the central bank decides to promote economic growth by lowering the bank rate, which of the following is a likely consequence for commercial banks?
विकल्प
They will increase interest rates on loans to maintain profitability.
They will decrease their lending activity to reduce risks.
They will expand their lending activities due to lower borrowing costs.
They will raise the Cash Reserve Ratio to align with central bank policies.
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उत्तर
They will expand their lending activities due to lower borrowing costs.
Explanation:
When the central bank lowers the bank rate as part of an expansionary monetary policy, the cost for commercial banks to borrow funds from the apex regulatory authority decreases. This decreased borrowing cost enables commercial banks to drop their own retail lending rates, making corporate and consumer credit more accessible and affordable, prompting them to increase their lending and credit creation activities in order to boost economic growth.
