Question

Identify the monetary tools used by the RBI to control the circulation of money in the economy.

• A. Rate of interest
• B. Reserve requirements
• C. Open market operations
• D. Public expenditure

Answer 1

Answer: (A), (B), (C)

Open market operations

The circulation of money in the economy is monitored by the RBI using several strategies called monetary tools. Some of them are:

1. The RBI has the authority to control the rate of interest on loans and savings.
2. The RBI also controls the quantity of money in an economy through the reserve requirement.
3. The RBI also carries out open market operations to sell government securities in the open market.