CA Foundation Exam > CA Foundation Questions > The RBI can decrease the bank credit by:a)Mai...
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The RBI can decrease the bank credit by:
- a)Maintaining the bank rate at the same level
- b)Increasing the Bank rate, Lowering the Bank rate and Lowering the CRR
- c)Increasing the CRR
- d)None of these
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
The RBI can decrease the bank credit by:a)Maintaining the bank rate at...
Decreasing Bank Credit through RBI Policy Measures
The Reserve Bank of India (RBI) can influence the level of bank credit in the economy through various policy measures. One of the primary objectives of RBI is to maintain price stability and promote economic growth.
One of the ways RBI can decrease the bank credit is by reducing the flow of funds to the banks. This can be achieved through the following measures:
1. Increasing Bank Rate: RBI can increase the bank rate, which is the rate at which the central bank lends money to the commercial banks. When the bank rate is increased, the cost of borrowing for the banks increases, which leads to a decrease in the credit available for the customers.
2. Lowering Bank Rate: On the other hand, RBI can also decrease the bank rate. This would encourage the banks to borrow more from the central bank at a lower rate and lend more to the customers, thus increasing the credit available in the economy.
3. Lowering Cash Reserve Ratio: RBI can also lower the cash reserve ratio (CRR), which is the percentage of deposits that banks are required to maintain with the central bank. When the CRR is lowered, banks have more funds available to lend, which leads to an increase in the credit available in the economy.
Conclusion
Thus, it can be concluded that RBI can decrease the bank credit by increasing the bank rate or lowering the CRR, or even by lowering the bank rate. Option 'B' is the correct answer.
The Reserve Bank of India (RBI) can influence the level of bank credit in the economy through various policy measures. One of the primary objectives of RBI is to maintain price stability and promote economic growth.
One of the ways RBI can decrease the bank credit is by reducing the flow of funds to the banks. This can be achieved through the following measures:
1. Increasing Bank Rate: RBI can increase the bank rate, which is the rate at which the central bank lends money to the commercial banks. When the bank rate is increased, the cost of borrowing for the banks increases, which leads to a decrease in the credit available for the customers.
2. Lowering Bank Rate: On the other hand, RBI can also decrease the bank rate. This would encourage the banks to borrow more from the central bank at a lower rate and lend more to the customers, thus increasing the credit available in the economy.
3. Lowering Cash Reserve Ratio: RBI can also lower the cash reserve ratio (CRR), which is the percentage of deposits that banks are required to maintain with the central bank. When the CRR is lowered, banks have more funds available to lend, which leads to an increase in the credit available in the economy.
Conclusion
Thus, it can be concluded that RBI can decrease the bank credit by increasing the bank rate or lowering the CRR, or even by lowering the bank rate. Option 'B' is the correct answer.
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Community Answer
The RBI can decrease the bank credit by:a)Maintaining the bank rate at...
B) The Reserve Bank of India (RBI) can use a variety of tools to decrease bank credit in the economy. These tools include:
- Lowering the Bank Rate: The bank rate is the interest rate at which the RBI lends money to commercial banks. By lowering the bank rate, the RBI can make it less expensive for banks to borrow from the central bank, which can reduce the supply of credit in the economy.
- Increasing the Bank Rate: By increasing the bank rate, the RBI can make it more expensive for banks to borrow from the central bank, which can reduce the supply of credit in the economy.
- Lowering the CRR: The cash reserve ratio (CRR) is the percentage of deposits that commercial banks are required to hold with the RBI as a reserve. By lowering the CRR, the RBI can increase the amount of money that commercial banks have available to lend, which can increase the supply of credit in the economy.
The RBI can use these tools in combination or individually to achieve its monetary policy objectives, such as maintaining price stability, full employment, and economic growth.
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