Practicing Success
Practicing Success
CUET Preparation Today
| Read the following statements - Assertion (A) and Reason (R): Assertion (A) If RBI intends to reduce money supply in the economy, it will Increase the reverse repo rate. Reason(R) Reverse repo rate is the rate offered by RBI on deposits of commercial banks. From the given alternatives choose the correct one: |
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A). b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A). c) Assertion (A) is true but Reason (R) is false. d) Assertion (A) is false but Reason (R) is true. |
| b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A). |
| The Repo Rate is the rate at which a nation’s central bank gives money to commercial banks in the time of a cash shortage. Monetary authorities use the Repo Rate to limit inflation.In the time of inflation, central banks increase the Repo Rate to prevent banks from borrowing from the central bank. Because of it, the money supply in the economy is reduced, which helps in containing inflation. The Reverse Repo Rate is the rate at which a country’s central bank borrows money from domestic commercial banks. It is an RBI monetary policy tool that can be used to control a country’s money supply. If the Reverse Repo Rate rises, the money supply falls, and vice versa, assuming all other variables remain constant. If the Reverse Repo rate increases, commercial banks will be more attracted to deposit their funds with the RBI, reducing the amount of money available in the market. |
