What will be the effect of increase in the ‘Repo Rate’ on the money supply?
What will be the effect of increase in the ‘Repo Rate’ on the money supply?
(a) Money supply will increase
(b) Money supply will decrease
(c) Money supply will remain same
(d) Money supply will initially increase and then it will decrease
Anurag Pathak Changed status to publish December 26, 2023
Ans – (b)
Explanation:-
Repo (Repurchase Rate): The repo rate is the rate at which the central bank of a country (RBI in the case of India) lends money to commercial banks to meet their short-term needs.
The central bank advances loans against approved securities or eligible bills of exchange.
An increase in the repo rate increases the cost of borrowing from the central bank.
It forces commercial banks to increase their lending rates, which discourages borrowers from taking loans.
It reduces the ability of commercial banks to create credit.
A decrease in the repo rate will have the opposite effect.
Anurag Pathak Changed status to publish December 26, 2023
