Match the following:
| 1. | Qualitative measure | A.Cash reserve ratio | |
| 2. | Quantitative measure | B.Controls excess demand | |
| 3. | Rise in bank rate | C.Moral suasion | |
| 4. | Credit creation | D.Commercial bank | |
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: 1- C, 2- A, 3-B, 4-D
| 1. | Qualitative measure | C.Moral suasion | |
| 2. | Quantitative measure | A.Cash reserve ratio | |
| 3. | Rise in bank rate | B.Controls excess demand | |
| 4. | Credit creation | D.Commercial bank | |
With the help of monetary policy, money supply in the economy can be controlled in the following ways:
- Quantitative: Bank rate, repo rate, reverse repo rate, open market operations, CRR, SLR etc.
- Qualitative : Imposing margin requirements, moral suasion etc.
Rise in bank rate will lead to a rise in the rate of interest, which will eventually discourage people to take loan. It will reduce the purchasing power of people and solve the problem of excess demand.
Credit creation is done with the help of commercial banks in the economy.