8. In order to encourage investment in the economy, the Central Bank may ___________.(Choose the
correct alternative)
a) Reduce Cash Reserve Ratio
b) Increase Cash Reserve Ratio
c) Sell Government securities in open market
d) Increase Bank Rate.
Answers
Answered by
2
The Central bank may Increase the bank rate to encourage investment in the economy.
Answer: Option D
Explanation:
The bank rate must be increased in order to encourage the investment as the increased rates of bank include the interest rate which surpluses the supply of money in the market to traditionally hit the target with short term rates and thus the investments are encouraged. Though the economy increases in good rate, the support from the people for the increased bank rate would be less.
Answered by
2
In order to encourage investment in the economy, the Central Bank may reduce the ‘Cash reserve ratio’.
Option: (a)
Explanation:
- When the Reserve bank of India decided to decrease the cash reserve ratio then the banks will have more money which can be used for investing in other businesses, since the amount of funds that need to be kept with the RBI is low.
- When the ‘reserve bank of India’ reduces the cash reserve ratio then it brings out the money from the system which causes a decrease in the money supply.
- When the money supply decreases, the inflation comes down. It encourages more investment with more money in the economy and other purposes.
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