If the Reserve Bank of India wants to contract credit in

Q: Answer-If the Reserve Bank of India wants to contract credit in the economy, it would most likely:

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.

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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