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An increase in the Bank Rate generally indicates that the
[2013]
- a)Market rate of interest is likely to fall
- b)Central Bank is no longer making loans to commercial banks
- c)Central Bank is following an easy money policy
- d)Central Bank is following a tight money policy
Correct answer is option 'D'. Can you explain this answer?
Most Upvoted Answer
An increase in the Bank Rate generally indicates that the[2013]a)Marke...
A tight monetary policy is a course of action undertaken by Central bank to constrict spending in an economy, or to curb inflation when it is rising too fast. The increased bank rate increases the cost of borrowing and effectively reduces its attractiveness.
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An increase in the Bank Rate generally indicates that the[2013]a)Marke...
Understanding Bank Rate Increase
An increase in the Bank Rate is a significant monetary policy tool used by central banks to control liquidity and inflation in the economy. Here's why it indicates a tight money policy:
Impact on Interest Rates
- When the Bank Rate rises, the cost of borrowing for commercial banks increases.
- This leads to higher market interest rates, making loans more expensive for consumers and businesses.
Central Bank's Strategy
- A higher Bank Rate suggests that the central bank aims to reduce the money supply in the economy.
- This is typically done to combat inflation, as reduced spending slows down economic growth.
Loan Availability
- Contrary to option B, an increase in the Bank Rate does not directly mean that the central bank stops lending to commercial banks.
- However, it does signal stricter lending conditions, as banks may borrow less due to higher costs.
Monetary Policy Orientation
- A tight money policy is aimed at curbing excessive spending and inflationary pressures.
- By increasing the Bank Rate, the central bank signals its commitment to maintaining price stability.
Conclusion
In summary, an increase in the Bank Rate indicates that the central bank is following a tight money policy, aimed at controlling inflation and reducing liquidity in the market. This action raises borrowing costs, influencing both consumer and business financing decisions. It's a proactive measure to ensure economic stability.
An increase in the Bank Rate is a significant monetary policy tool used by central banks to control liquidity and inflation in the economy. Here's why it indicates a tight money policy:
Impact on Interest Rates
- When the Bank Rate rises, the cost of borrowing for commercial banks increases.
- This leads to higher market interest rates, making loans more expensive for consumers and businesses.
Central Bank's Strategy
- A higher Bank Rate suggests that the central bank aims to reduce the money supply in the economy.
- This is typically done to combat inflation, as reduced spending slows down economic growth.
Loan Availability
- Contrary to option B, an increase in the Bank Rate does not directly mean that the central bank stops lending to commercial banks.
- However, it does signal stricter lending conditions, as banks may borrow less due to higher costs.
Monetary Policy Orientation
- A tight money policy is aimed at curbing excessive spending and inflationary pressures.
- By increasing the Bank Rate, the central bank signals its commitment to maintaining price stability.
Conclusion
In summary, an increase in the Bank Rate indicates that the central bank is following a tight money policy, aimed at controlling inflation and reducing liquidity in the market. This action raises borrowing costs, influencing both consumer and business financing decisions. It's a proactive measure to ensure economic stability.
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An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer?.
An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer?.
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An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer?, a detailed solution for An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer? has been provided alongside types of An increase in the Bank Rate generally indicates that the[2013]a)Market rate of interest is likely to fallb)Central Bank is no longer making loans to commercial banksc)Central Bank is following an easy money policyd)Central Bank is following a tight money policyCorrect answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
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