CA Foundation Exam > CA Foundation Questions > In order to control credita)CRR should be inc...
Start Learning for Free
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?
| FREE This question is part of | Download PDF Attempt this Test |
Most Upvoted Answer
In order to control credita)CRR should be increased and bank rate shou...
Understanding Credit Control
Credit control is a crucial part of monetary policy, primarily managed by a central bank, aimed at regulating the money supply and ensuring financial stability.
Key Terms Explained
- CRR (Cash Reserve Ratio): This is the percentage of a bank's total deposits that must be maintained as reserves with the central bank. A higher CRR reduces the available funds for banks to lend, thus tightening credit.
- Bank Rate: This is the rate at which the central bank lends money to commercial banks. An increase in the bank rate raises the cost of borrowing for banks, which is then passed on to consumers and businesses.
Why Option C is Correct
- Increased CRR: By increasing the CRR, the central bank restricts the amount of money that banks can use for lending. This leads to a contraction in credit availability, thereby controlling inflation and excessive borrowing.
- Increased Bank Rate: Raising the bank rate discourages banks from borrowing from the central bank. Consequently, banks will raise their lending rates to consumers, further reducing the demand for loans.
Combined Effect
- When both CRR and bank rate are increased, banks are compelled to reduce their lending activities. This effectively curtails credit growth in the economy, helping to stabilize prices and maintain economic equilibrium.
Conclusion
Thus, increasing CRR and the bank rate (Option C) is a robust strategy for controlling credit in the economy, ensuring that inflation is kept in check and financial stability is achieved.
Credit control is a crucial part of monetary policy, primarily managed by a central bank, aimed at regulating the money supply and ensuring financial stability.
Key Terms Explained
- CRR (Cash Reserve Ratio): This is the percentage of a bank's total deposits that must be maintained as reserves with the central bank. A higher CRR reduces the available funds for banks to lend, thus tightening credit.
- Bank Rate: This is the rate at which the central bank lends money to commercial banks. An increase in the bank rate raises the cost of borrowing for banks, which is then passed on to consumers and businesses.
Why Option C is Correct
- Increased CRR: By increasing the CRR, the central bank restricts the amount of money that banks can use for lending. This leads to a contraction in credit availability, thereby controlling inflation and excessive borrowing.
- Increased Bank Rate: Raising the bank rate discourages banks from borrowing from the central bank. Consequently, banks will raise their lending rates to consumers, further reducing the demand for loans.
Combined Effect
- When both CRR and bank rate are increased, banks are compelled to reduce their lending activities. This effectively curtails credit growth in the economy, helping to stabilize prices and maintain economic equilibrium.
Conclusion
Thus, increasing CRR and the bank rate (Option C) is a robust strategy for controlling credit in the economy, ensuring that inflation is kept in check and financial stability is achieved.
Attention CA Foundation Students!
To make sure you are not studying endlessly, EduRev has designed CA Foundation study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in CA Foundation.
|
Explore Courses for CA Foundation exam
|
|
Similar CA Foundation Doubts
Top Courses for CA FoundationView all
In order to control credita)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?
Question Description
In order to control credita)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? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about In order to control credita)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? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In order to control credita)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?.
In order to control credita)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? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about In order to control credita)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? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In order to control credita)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?.
Solutions for In order to control credita)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? in English & in Hindi are available as part of our courses for CA Foundation.
Download more important topics, notes, lectures and mock test series for CA Foundation Exam by signing up for free.
Here you can find the meaning of In order to control credita)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? defined & explained in the simplest way possible. Besides giving the explanation of
In order to control credita)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?, a detailed solution for In order to control credita)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? has been provided alongside types of In order to control credita)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? theory, EduRev gives you an
ample number of questions to practice In order to control credita)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? tests, examples and also practice CA Foundation tests.
|
|
Explore Courses for CA Foundation exam
|
|
Suggested Free Tests
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup