Question

Which of the following does the RBI do to control inflation?

• A. Regulates money supply in the economy
• B. Gives free commodities to all
• C. Stops the circulation of money totally
• D. Controls the spending capacity of people

Answer 1

Answer: (A), (D)

Controls the spending capacity of people

The Reserve Bank of India (RBI) controls the prices of goods and services through the monetary policy. An increase in the money supply in an economy leads to inflation and so, the RBI curbs the money supply. This results in less money circulation and encourages people to spend less. Eventually, it reduces the price of goods and services due to less demand.