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Which of the following tools are used by RBI to maintain money supply in the economy?
1. Statutory liquidity ratio
2. Repo Rate
3. Bank Rate
Select the correct answer using the code given below:
1. Statutory liquidity ratio
2. Repo Rate
3. Bank Rate
Select the correct answer using the code given below:
- a)1 and 2 only
- b)2 only
- c)1 and 3 only
- d)1, 2 and 3
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
Which of the following tools are used byRBI to maintain money supply i...
All of the above are used to maintain money supply in the economy. They are quantitative measures for the same.
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Which of the following tools are used byRBI to maintain money supply i...
Tools used by RBI to maintain money supply in the economy:
Statutory Liquidity Ratio:
- Statutory Liquidity Ratio (SLR) is the percentage of Net Demand and Time Liabilities (NDTL) that banks are required to maintain in the form of liquid assets like cash, gold, or securities.
- By changing the SLR, RBI can control the liquidity in the banking system. If the SLR is increased, banks have to hold more reserves, reducing the amount available for lending and vice versa.
Repo Rate:
- Repo Rate is the rate at which the central bank (RBI) lends money to commercial banks in case of any shortfall of funds.
- By changing the repo rate, RBI can influence the lending capacity of banks. A decrease in the repo rate encourages banks to borrow more from RBI, increasing liquidity in the system.
Bank Rate:
- Bank Rate is the rate at which the central bank (RBI) lends money to commercial banks for long-term funds.
- By changing the bank rate, RBI can control the cost of borrowing for banks, affecting their lending rates and ultimately impacting the money supply in the economy.
Conclusion:
- All three tools, namely Statutory Liquidity Ratio, Repo Rate, and Bank Rate, are used by RBI to maintain money supply in the economy. Each tool plays a crucial role in regulating liquidity and credit flow in the financial system, thereby influencing economic growth and stability.
Statutory Liquidity Ratio:
- Statutory Liquidity Ratio (SLR) is the percentage of Net Demand and Time Liabilities (NDTL) that banks are required to maintain in the form of liquid assets like cash, gold, or securities.
- By changing the SLR, RBI can control the liquidity in the banking system. If the SLR is increased, banks have to hold more reserves, reducing the amount available for lending and vice versa.
Repo Rate:
- Repo Rate is the rate at which the central bank (RBI) lends money to commercial banks in case of any shortfall of funds.
- By changing the repo rate, RBI can influence the lending capacity of banks. A decrease in the repo rate encourages banks to borrow more from RBI, increasing liquidity in the system.
Bank Rate:
- Bank Rate is the rate at which the central bank (RBI) lends money to commercial banks for long-term funds.
- By changing the bank rate, RBI can control the cost of borrowing for banks, affecting their lending rates and ultimately impacting the money supply in the economy.
Conclusion:
- All three tools, namely Statutory Liquidity Ratio, Repo Rate, and Bank Rate, are used by RBI to maintain money supply in the economy. Each tool plays a crucial role in regulating liquidity and credit flow in the financial system, thereby influencing economic growth and stability.
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Which of the following tools are used byRBI to maintain money supply in the economy?1. Statutory liquidity ratio2. Repo Rate3. Bank RateSelect the correct answer using the code givenbelow:a)1 and 2 onlyb)2 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer?
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