Question:

Central Bank can decrease the money supply in the economy by ________ .

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An increase in the bank rate leads to a reduction in borrowing, which in turn decreases the money supply.
Updated On: July 22, 2025
  • lowering the cash reserve
  • increasing the bank rate
  • lowering the bank rate
  • purchase of G-Secs (Government Securities)
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The Correct Option is B

Solution and Explanation

\text{Increasing the bank rate increases the cost of borrowing for commercial banks, leading them to reduce their lending. This results in a decrease in the money supply.}
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