Which of the following measures could lead to lowering of inflation in an economy 1 Increase in Stat...........

Economic Affairs Inflation

Which of the following measures could lead to lowering of inflation in an economy?

1. Increase in Statutory Liquidity Ratio or SLR.

2. Decrease in Interest rates by Banks.

3. Increase in Cash Reserve Ratio or CRR.

4. Decrease in Reverse Repo Rates

Select the correct answer using codes given below

1 and 2 only

1, 2 and 3 only

1 and 3 only

2 and 4 only

First is correct.
In case of inflation in the economy the RBI uses SLR as a a means to suck liquidity from the market.
When the banks have less money to deploy as loans they will increase the interest rates to maintain their profit margin.
As loans become expensive the consumers borrow less and spend less.
Thus the demand falls, prices start falling and so does inflation.
Second is incorrect.
As interest rates are lowered, more people are able to borrow more money, causing the economy to grow and inflation to increase.
Third is correct.
Whenever the RBI hikes the CRR rate, a lot of excess liquidity is sucked out of the markets.
Banks have lesser cash available with them to deploy as loans.
Consequently, to maintain their profit margins, they have to increase the lending rates at which they disburse loans.
As loan rates go up, consumers tend to borrow less and eventually spend less.
Thus the demand for goods and services goes down.
All inflated prices start coming down due to the decrease in demand.
And as prices start moving downwards, inflation starts coming down.
Fourth is incorrect.
If inflation increases in the economy = people has more money with them = RBI governor decides to increase the repo rate so as to drain out the money from the banks and thereby decreasing demand for products and services, consequently it leads to decrease in money supply in economy and decrease in inflation rate.