Question

In order to control inflation, the central bank should

• A. Sell government securities and lower the bank rate
• B. Sell government securities and raise the bank rate
• C. Purchase government securities and raise the bank rate
• D. Purchase government securities and lower the bank rate

Answer 1

Answer: (B)

Sell government securities and raise the bank rate

To control the inflationary trend, the Central Bank should sale government securities and raise the bank rate. Both of the measures given above result in reduction in the purchasing power of people.