Question

 If recession is to be combated : *

1 point

a) CRR and SLR need to be lowered

b) RBI must sell Govt. securities

c) Margin required on loans should be increased

d) Bank rate must be increased so that banks could borrow more​

Answer 1

Answer: May be answer was (c)

Explanation:

Answer 2

Answer:

The correct answer is option (a) CRR and SLR need to be lowered

Explanation:

(a)CRR and SLR need to be lowered-

• The Cash Reserve Ratio (CRR) is the percentage of money that a bank must keep in cash with the RBI.
• In contrast, the Statutory Liquidity Ratio (SLR) is the ratio of liquid assets to time and demand liabilities.
• When CRR and SLR are lowered, the amount available with the banks increases. This money can be lent to the people and this way the money supply increases and the recession is combated.

(b) RBI must sell Govt. securities-

• When the RBI sells the Government securities to the public, it decreases the purchasing power of the people.
• With less purchasing power, there is less money supply in the country and the recession cant be combated.

(c) Margin required on loans should be increased-

• The difference between the current value of the security offered for loan (called collateral) and the value of the loan granted is referred to as the margin requirement.
• When the margin requirement increases, the people will be reluctant to take loan and this will reduce the money supply in the country, hence it wont combat recession.

(d) Bank rate must be increased so that banks could borrow more​

• The bank rate is the interest rate charged on loans made by the Central Bank to commercial banks that do not require collateral.
• The bank rate is a quantitative credit control measure used by the government to control the overall supply of money in the economy.
• During a recession, bank rates are reduced in order to increase the total money supply in the economy by increasing credit creation by commercial banks.

Hence, we can conclude that recession can be combated by increasing the money supply in the country.

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