All questions of Central Banking for Class 10 Exam

The Primary Function of a Central Bank
Central banks play a crucial role in a country's economy, primarily focusing on maintaining monetary stability. Here’s a detailed breakdown of their main function:
1. Issuing Currency
- Central banks are responsible for the production and distribution of the national currency.
- They ensure that there is enough money in circulation to meet the demands of the economy.
2. Regulating the Money Supply
- Central banks control the amount of money available in the economy through various monetary policy tools.
- This regulation helps manage inflation and stabilize the economy, ensuring sustainable growth.
3. Monetary Policy Implementation
- They set key interest rates, influencing borrowing and spending in the economy.
- By adjusting these rates, central banks can either stimulate economic growth (by lowering rates) or cool down an overheated economy (by raising rates).
4. Financial Stability
- Central banks monitor and manage systemic risks in the financial system.
- They act as a lender of last resort to commercial banks, ensuring liquidity during financial crises.
5. Economic Research and Data Analysis
- Central banks conduct research to inform their policies and understand economic trends.
- They provide valuable data to the government and the public, enhancing transparency and trust.
In conclusion, while central banks do not typically accept public deposits, provide loans to individuals, or aim to maximize profits for commercial banks, their primary function remains the issuance of currency and the regulation of the money supply. This ensures a stable economic environment conducive to growth and prosperity.

Understanding the Impact of Raising the Bank Rate
When a Central Bank raises the bank rate, it essentially indicates a shift in monetary policy, which can have significant implications for the economy.
What is the Bank Rate?
- The bank rate is the interest rate at which a country's central bank lends money to domestic banks.
- It serves as a benchmark for other interest rates in the economy.
Impact of Raising the Bank Rate
- Dear Money Policy: Raising the bank rate signals a "dear money" policy. This means that borrowing becomes more expensive.
- Cost of Borrowing: Higher bank rates translate to higher interest rates on loans for consumers and businesses.
- Credit Availability: As borrowing costs increase, the flow of credit typically decreases. This can lead to a slowdown in consumer spending and business investment.
Consequences of a Dear Money Policy
- Reduced Spending: Consumers may postpone major purchases due to higher loan costs, while businesses might scale back on expansion plans.
- Inflation Control: A central bank may raise rates to curb inflation, making money more expensive to borrow, thereby reducing the amount of money in circulation.
- Economic Slowdown: While this policy can help control inflation, it may also lead to an economic slowdown if businesses and consumers significantly reduce spending.
Conclusion
In summary, when the Central Bank raises the bank rate, it signals a dear money policy, leading to higher borrowing costs, reduced credit availability, and potential economic implications. Understanding these dynamics is crucial for grasping monetary policy's role in economic health.