Ans – (a)
The main aim of monetary policy is to bring price stability in the economy.
The central bank uses monetary policy to control the money supply.
money supply is controlled by controlling the credit-creating capacity of the commercial bank.
for example, the bank rate is one of the monetary policy.
An increase in bank rate forces commercial banks to raise the interest rate on loans.
It discourages the public from applying for a loan.
It decreases the money supply and decreases the purchasing capacity.
It results in a decrease in demand and price falls.
A decrease in the bank rate shows the opposite effect on market price.
Thus, price can be stabilised by taking the right action with monetary policies.