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Instruments of Monetary Policy and RBI Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
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FAQs on Instruments of Monetary Policy and RBI Video Lecture - SSC CGL Tier 2 - Study Material, Online Tests, Previous Year
| 1. What are the instruments of monetary policy? |  |
Ans. The instruments of monetary policy are tools used by the central bank (RBI) to control and regulate the money supply in the economy. These instruments include open market operations, reserve requirements, and the repo rate.
| 2. How does open market operations affect monetary policy? | |
Ans. Open market operations refer to the buying and selling of government securities by the central bank. When the central bank buys government securities, it injects money into the economy, increasing the money supply. Conversely, when it sells government securities, it withdraws money from the economy, reducing the money supply. This impacts interest rates and credit availability, thereby influencing monetary policy.
| 3. What role does the reserve requirement play in monetary policy? | |
Ans. The reserve requirement refers to the portion of deposits that banks are required to keep with the central bank. By adjusting the reserve requirement, the central bank can control the amount of money banks can lend. If the reserve requirement is increased, banks have less money available to lend, reducing the money supply. Conversely, if the reserve requirement is decreased, banks can lend more, increasing the money supply.
| 4. How does the repo rate impact monetary policy? | |
Ans. The repo rate is the rate at which the central bank lends money to commercial banks. By adjusting the repo rate, the central bank can influence the cost of borrowing for banks. If the repo rate is increased, borrowing becomes more expensive, which reduces the money supply as banks are less likely to lend. On the other hand, if the repo rate is decreased, borrowing becomes cheaper, encouraging banks to lend more and increasing the money supply.
| 5. How does the RBI use monetary policy to control inflation? | |
Ans. The RBI uses monetary policy to control inflation by adjusting the interest rates and money supply in the economy. If inflation is high, the RBI may increase the repo rate, making borrowing more expensive and reducing the money supply. This helps in curbing excess demand and controlling inflation. Conversely, if inflation is low, the RBI may decrease the repo rate, making borrowing cheaper and increasing the money supply to stimulate economic growth.
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Nov 22, 2024 Last updated |
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