Question : Which measure(s) is the Reserve Bank most likely to take to combat inflation in the economy?
A) Increase repo rate
B) Increase money supply
C) Decrease cash reserve ratio
Option 1: Only A
Option 2: Both B and C
Option 3: Only B
Option 4: Both A and C
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Correct Answer: Only A
Solution : The correct answer is Only A.
The repo rate is the interest rate that the central bank of a nation—in India, the RBI—uses to lend money to commercial banks in times of financial crisis. To control inflation and deflation, the Bank of India (RBI) uses a variety of monetary policy tools, including the market stabilisation scheme, cash reserve ratio (CRR), bank rate, repo rate, reverse repo rate, open market operations, statutory liquidity ratio (SLR), and liquidity adjustment facility (LAF).
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