Question

The Central Bank can reduce the Money Supply in the economy by ______ the _______. (Fill up the blanks with the correct alternative.) 
 

• A. increasing, bank rate
• B. decreasing, cash reserve ratio
• C. decreasing, bank rate
• D. buying, government securities

Hint:

The bank rate influences lending and borrowing in the economy, making it a key monetary policy tool.

Answer 1

The Correct Option is A

The Central Bank reduces the money supply by increasing the bank rate. A higher bank rate makes borrowing more expensive for commercial banks, leading to reduced credit availability in the economy and contraction in the money supply.