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    Question

    An increase in the Bank Rate generally indicates that

    the _________.
    A Market rate of interest is likely to fall Correct Answer Incorrect Answer
    B Central Bank is no longer making loans to commercial banks Correct Answer Incorrect Answer
    C Central Bank is following an easy money policy Correct Answer Incorrect Answer
    D Central Bank is following a tight money policy Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Bank Rate is the rate at which the RBI lends to the banks without any security or collateral. An increase in the Bank Rate will make borrowing from the RBI expensive for the Commercial Banks. This will make further lending by these banks to borrowers expensive, which will reduce the overall lending activity and thus the money supply in the economy.

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