Practicing Success
In order to control "Inflation" in the economy, how will the "Reserve Bank of India" react? |
Decrease repo rate Decrease reverse repo rate Increase bank rate All of the above |
Increase bank rate |
Inflation is a situation when there is excess money supply in the economy, so in order to deal with that money supply has to be reduced. When we increase the bank rate it will lead to gradual increase in the rate of interest. This will discourage the people to take loan and eventually reduce their purchasing power. When purchasing power is reduced inflation automatically comes into place. Thus, we can say that increasing the bank rate would result in controlling the inflation in the economy. |