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Howwill 'Reverse Repo Rate' and 'Open MarketOperations' conrtolexcess moneysupplyin an economy? |
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Answer» Solution :Reverse repo rate is the rate at which RBI borrows money from the commercial banks. The increase in the repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit. When the central bank wants to increase the money supply in the economy, it PURCHASES the GOVERNMENT securities, i.e., bills, and bonds. On the other hand, the central bank sells the government bonds and securities if the money supply is to be CURTAILED. The open market operations are one of the most widely USED measures of monetary CONTROL. |
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