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Home Questions 6DY3TA72YP
Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Money and Banking

Question:

Match the following:

1. Increase in money supply A. Rate at which commercial bank borrows money from RBI
2. Decrease in money supply B. Statutory liquidity ratio increase by 0.35 points
3. Repo rate C. Cash reserve ratio decreased by 0.5 points
4. Reverse repo rate D. Rate at which commercial bank deposits its surplus funds with RBI

 

Options:

1-B , 2-C , 3- D, 4- A

1-A , 2-B , 3- C, 4- D

1-A , 2-C , 3- B, 4- D

1-C , 2-B , 3- A, 4- D

Correct Answer:

1-C , 2-B , 3- A, 4- D

Explanation:

The correct answer is Option 4: 1-C , 2-B , 3- A, 4- D

1. Increase in money supply C.Cash reserve ratio decreased by 0.5 points
2. Decrease in money supply B.Statutory liquidity ratio increase by 0.35 points
3. Repo rate A.Rate at which commercial bank borrows money from RBI
4. Reverse repo rate D.Rate at which commercial bank deposits its surplus funds with RBI

If we decrease CRR, the banks will have more money to lend, which will increase the money supply. If we increase SLR, the banks will have less money left with them to lend, which will decrease the supply of money in the economy. When, commercial banks have surplus funds, they park it with RBI and the rate of return which they get is known as reverse repo rate. Whereas, when commercial banks require funds for a small period of time, they borrow from reserve bank of India against approved security. The rate charged for the same is called as repo rate.

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