Arrange the correct sequence of impact of increase in Bank Rate of Central Bank:-

A. Costly loan for general public
B. Increase in rate of interest by commercial bank
C. Expensive loan taken by commercial banks.
D. Decrease in money supply
E. Control over the situation of inflation

Choose the correct answer from the options given below:

C, B, A, D, E

When the Central Bank increases the Bank Rate, it becomes more expensive for commercial banks to borrow money from the Central Bank. As a result, commercial banks increase their lending rates to businesses and consumers. This makes it more expensive for people to borrow money, which can lead to a decrease in spending and investment.

A decrease in spending and investment can lead to a decrease in the money supply. The money supply is the total amount of money in circulation in an economy. When there is less money in circulation, it can lead to a decrease in inflation.

Inflation is a general increase in the prices of goods and services. When inflation is high, it can make it difficult for people to afford basic necessities such as food and housing.

Therefore, the correct sequence of impact of an increase in the Bank Rate is:

• C. Expensive loan taken by commercial banks: An increase in the Bank Rate makes loans taken by commercial banks from the central bank more expensive.
• B. Increase in rate of interest by commercial bank: Commercial banks, in turn, increase their lending rates.
• A. Costly loan for the general public: Higher lending rates by commercial banks result in more expensive loans for the general public.
• D. Decrease in money supply: Expensive loans lead to a decrease in borrowing and spending, contributing to a decrease in the money supply.
• E. Control over the situation of inflation: The overall impact is a control mechanism that can help manage inflation.