Question

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

• A. lowering the cash reserve
• B. increasing the bank rate
• C. lowering the bank rate
• D. purchase of G-Secs (Government Securities)

Hint:

An increase in the bank rate leads to a reduction in borrowing, which in turn decreases the money supply.

Answer 1

The Correct Option is B

\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.}