Practicing Success
RBI can influence money supply by changing the Bank rate. An increase in Bank rate can be termed as : |
Contractionary monetary policy Expansionary monetary policy Contractionary fiscal policy Expansionary fiscal policy |
Contractionary monetary policy |
The correct answer is Option 1: Contractionary monetary policy. Monetary policy refers to the actions taken by a central bank to influence the money supply and interest rates. Contractionary monetary policy is a type of monetary policy that aims to reduce the money supply and raise interest rates. This is typically done by selling government bonds in the open market or by raising the reserve requirement for commercial banks. An increase in the bank rate is an example of contractionary monetary policy. When the bank rate is increased, it becomes more expensive for commercial banks to borrow money from the central bank. This can lead to a decrease in the money supply and an increase in interest rates. |