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    Question

    Which of the following things will RBI do if it has to

    combat raising inflation?  
    A Sell government securities Correct Answer Incorrect Answer
    B increase reserve ratios Correct Answer Incorrect Answer
    C Increasing bank rate Correct Answer Incorrect Answer
    D Only 2 and 3 Correct Answer Incorrect Answer
    E All 1, 2 and 3 Correct Answer Incorrect Answer

    Solution

    RBI has to sell government securities, increase bank rate, increase policy rate, etc, so that banks have left less money to lend then people borrow less, demand goes down and the result of it is the prices of goods and services also goes down. This is how, RBI decreases the inflation rate.  

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