Question

If the economy is to control recession like most of the Euro-Zone nations, which of the following can be appropriate:

Reducing repo rate

Reducing CRR

Both 1 and 2

None of 1 and 2

Answer 1

Answer:

Repo rate relates to the loans offered by the RBI to the commercial banks not without collateral.

Cash reserve ratio refers to the percentage of total demand deposits of the commercial banks which they must keep as cash reserves with the RBI.

To control recession, the central bank must reduce both repo rate and CRR so the credit creation capacity of the commercial banks and the money supply in an economy get increased. As a result aggregate demand will also increase.

Answer 2

Answer:

Both 1 and 2 (reducing repo rate and reducing CRR)