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Question

In the case of inflation, central banks ____________ repo rate.


A
Decrease
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B
Increase
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C
Maintains same
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D
Alternately increases or decreases at intervals
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E
None of the above
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Solution

The correct option is B Increase
In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.

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