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Question
What is this policy called that controls the credit supply in an economy?
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Solution
- Monetary policy refers to the policy that manages an economy's credit supply.
- The central bank uses this policy to regulate the money supply, limit inflation, stabilise the currency, and affect interest rates, all of which contribute to economic activity and financial stability.
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RELATED QUESTIONS
Define bank rate.
During deflation, the Central Bank usually ______.
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 |
Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Increase in cash reserve ratio adversely affects the capacity of commercial banks to create credit.
Reason (R): An increase in cash reserve ratio reduces the excess reserves of commercial banks and hence limits their credit creating power.
Read the following statements - Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Bank rate is a quantitative instrument of monetary policy.
Reason (R): During inflation, RBI reduces the bank rate.
Give any two reasons as to why a country needs a central bank.
Differentiate between quantitative and qualitative methods of credit control.
Define the following term:
Cash Reserve Ratio.
Central bank is the lender of the last resort. Explain.
Which are qualitative methods of credit control?
