CA Foundation Exam > CA Foundation Questions > In order to control credit:a)CRR should be in...
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In order to control credit:
- a)CRR should be increased and Bank rate should be decreased
- b)CRR should be reduced and Bank rate should be reduced
- c)CRR should be increased and Bank rate should be increased
- d)CRR should be reduced and Bank rate should be increased
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
In order to control credit:a)CRR should be increased and Bank rate sho...
Explanation:
Control of Credit:
To control credit in the economy, the Central Bank (such as the Reserve Bank of India) uses two main tools: Cash Reserve Ratio (CRR) and Bank Rate.
CRR and Bank Rate:
- CRR (Cash Reserve Ratio): It is the percentage of deposits that banks are required to keep with the central bank in the form of reserves. By increasing the CRR, the central bank can reduce the amount of money available for lending by commercial banks, thereby controlling credit in the economy.
- Bank Rate: It is the rate at which the central bank lends money to commercial banks. By increasing the Bank Rate, the central bank can make borrowing more expensive for commercial banks, which in turn reduces the amount of credit available in the economy.
Correct Approach:
- CRR should be increased and Bank rate should be increased: By increasing both the CRR and Bank Rate, the central bank can effectively control the amount of credit available in the economy. This dual approach restricts the ability of commercial banks to lend out money and helps in controlling inflation and excess liquidity in the economy.
Therefore, the correct option is 'CRR should be increased and Bank rate should be increased' to control credit effectively in the economy.
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In order to control credit:a)CRR should be increased and Bank rate sho...
C
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In order to control credit:a)CRR should be increased and Bank rate should be decreasedb)CRR should be reduced and Bank rate should be reducedc)CRR should be increased and Bank rate should be increasedd)CRR should be reduced and Bank rate should be increasedCorrect answer is option 'C'. Can you explain this answer?
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