Advertisements
Advertisements
Question
During inflation, the central bank usually:
Options
Decreases bank rate
Decreases cash reserve ratio
Increases bank rate
Buys government securities
Advertisements
Solution
Increases bank rate
Explanation:
During inflation, the central bank normally raises the bank rate. This makes borrowing more expensive for commercial banks, resulting in higher interest rates for individuals and companies. The greater cost of borrowing reduces the economy's money supply, which helps to keep inflation under control.
APPEARS IN
RELATED QUESTIONS
Which of the following is a selective/qualitative method of credit control.
The difference between the value of security and the amount of loan sanctioned against these securities is known as:
Define qualitative credit control policy of the RBI.
Bank rate is the rate at which:
Match the following and select the correct option:
| Column A | Column B | ||
| (i) | A rate of interest at which the central bank (RBI) lends money to member commercial banks to meet they long term needs. | A. | Cash Reserve Ratio |
| (ii) | A rate of interest at which RBI lends money to commercial banks to meet their short term needs. | B. | Statutory liquidity ratio |
| (iii) | A minimum percentage of total deposits kept by banks with the Central Bank. | C. | Repo rate |
| (iv) | A minimum percentage of total deposits to be kept by banks inform of liquid assets with themselves. | D. | Bank rate |
Differentiate between quantitative and qualitative methods of credit control.
Briefly explain the following credit control method adopted by the Central Bank.
Publicity
Identify the following Credit Control measure undertaken by the Central Bank during inflation.
The Central Bank sells government approved securities to the public.
What do you mean by credit control?
Describe two quantitative credit control measures of the Central Bank.
