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      Question

      When the RBI wants to inject liquidity into economy, it

      may adopt the following : (1) Buy the government securities from the banks. (2) Enter into reverse repo operations (3) Raise cash Reserve Ratio (4) Reduce SLR. Select the correct answer using the codes given below:
      A 1 only Correct Answer Incorrect Answer
      B 1 and 4 only Correct Answer Incorrect Answer
      C 1, 2 and 4 only Correct Answer Incorrect Answer
      D 1, 2, 3 and 4 Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      Solution

      By buying the government securities from the banks and reducing SLR may inject money into the system. However Raising cash Reserve Ratio may take away liquidity from the market as the banks will have to deposit more money with the RBI and similarly entering the reverse repo operations may also take away liquidity from the market.

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