Question

Which one of the following is not an instrument of credit control in the banking system?

• A. Open market operations
• B. Moral suasion
• C. Cash Reserve Ratio
• D. Tax rates

Answer 1

The correct option is D Tax rates

Taxes are compulsory payment made to government by the household and producing sector for using the general services in the economy. During inflation, the government increases the tax burden on the households and the producers which reduces the purchasing power in the economy by decreasing the real income thus correcting inflation in the economy. Therefore, it is an instrument of fiscal policy of the economy.