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In a situation of Excess Demand. Choose the correct option.
(A) Cash reserve ratio should decrease
(B) Bank rate should increase
(C) Statutory Liquidity Ratio should increase
(D) Statutory Liquidity Ratio should decrease
Choose the correct answer from the options given below :
(1)(A) and (B) only
(2)(B) and (C) only
(3)(C) and (A) only
(4)(D) and (B) only
1
2
3
4
- In a situation of excess demand, the central bank might aim to reduce the money supply to curb inflation.
- Option (A): Decreasing the Cash Reserve Ratio (CRR) would increase the money that banks can lend, which could worsen excess demand.
- Option (B): Increasing the bank rate makes borrowing more expensive, reducing money supply and helping to control excess demand.
- Option (C): Increasing the Statutory Liquidity Ratio (SLR) means banks have to hold more in liquid assets, reducing the money available for loans, which helps manage excess demand.
- Option (D): Decreasing the SLR increases the money supply, not suitable for controlling excess demand.
- Correct Answer: Option 2 (B) and (C) only.
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