Multiple Choice Questions on With reference to the lsquo Repo Rate rsquo consider the following statements It is the rate at whic........... for UPSC Civil Services Examination (General Studies) Preparation

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Multiple Choice Questions

With reference to the lsquo Repo Rate rsquo consider the following statements It is the rate at whic...........

Economic Affairs Money Supply and Monetary Policy
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    With reference to the ‘Repo Rate’, consider the following statements

    1. It is the rate at which the Reserve Bank of India borrows money from commercial banks within the country.
    2. At the time of inflation in the country, the repo rate is reduced.

    Select the correct statement.

    1 only

    Incorrect Answer

    2 only

    Incorrect Answer

    Both

    Incorrect Answer

    None

    Correct Answer
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    Explanation:

    Both statements are incorrect.

    • Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
    • In the event of INFLATION central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation. 

    Hence option 4th is correct.

    By: Shubham Tiwari
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