UPSC Prelims 2013 · Question 93 of 99
UPSC Prelims 2013 question on Bank Rate Tight Money
- ExamUPSC CSE
- Year2013
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicMoney Market
- DifficultyEasy
- TypeDirect
An increase in the Bank Rate generally indicates that the:
Show answer
Answer: D. Central Bank is following a tight money policy
Analysis
When the RBI increases the Bank Rate, borrowing from the central bank becomes more expensive for commercial banks. This generally leads to higher interest rates in the economy and reduces money supply and credit expansion. Such a policy is known as a tight or contractionary monetary policy. Therefore, an increase in the Bank Rate indicates a tight money policy.
Extra UPSC info
Tight monetary policy is commonly used to control inflation in the economy.