Question

What kind of change is to be made in (i) cash reserve ratio and (ii) bank rate in order to control inflation?

• A. (i) should be increased, (ii) should be decreased.
• B. (ii) should be increased, (i) should be decreased.
• C. Both should be increased.
• D. Both should be decreased.

Answer 1

The correct option is C Both should be increased.

When Cash Reserve Ratio or Bank rate is increased, the commercial banks have less deposits to lend to the public, as such, the money supply in the economy reduces and it helps in controlling inflation.