CUET Preparation Today
In the question given below, there are 2 statements marked as Assertion (A) and Reason (R). Choose the correct alternative from the following options. Assertion (A)- In order to curb deflation in the economy, RBI reduces the repo rate. Reason (R)- Reduction in the repo rate causes the purchasing power of people to fall and helps in stabilizing deflation in the economy. |
Both (A) and (R) are true and (R) is the correct explanation. Both (A) and (R) are true but (R) is not the correct explanation of (A). (A) Is true but (R) is false. (A) Is false but (R) is true. |
(A) Is true but (R) is false. |
The correct answer is Option 3: (A) Is true but (R) is false. Assertion (A): "In order to curb deflation in the economy, RBI reduces the repo rate." This assertion is true. To combat deflation (a decrease in the general price level), the Reserve Bank of India (RBI) can reduce the repo rate. Lowering the repo rate makes borrowing cheaper, which can encourage spending and investment, helping to increase aggregate demand and counteract deflation. Reasoning (R): "Reduction in the repo rate causes the purchasing power of people to fall and helps in stabilizing deflation in the economy." This reasoning is false. A reduction in the repo rate generally increases the purchasing power of people by making borrowing cheaper and lowering interest rates. This increased access to credit can boost spending and investment, which helps to counteract deflation, not cause it. |
