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      Question

      If the Reserve Bank of India wants to contract credit in

      the economy, it would most likely:
      A Increase the Bank Rate and decrease CRR Correct Answer Incorrect Answer
      B Decrease the Bank Rate and increase SLR Correct Answer Incorrect Answer
      C Increase the CRR and SLR Correct Answer Incorrect Answer
      D Decrease the CRR and SLR Correct Answer Incorrect Answer
      E Buy government securities in the open market Correct Answer Incorrect Answer

      Solution

      To contract credit (reduce money supply), the RBI uses contractionary monetary policy. Increasing the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) reduces the funds banks have available to lend, thereby contracting credit. (e) is an expansionary open market operation.

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