WBCS.LIVE practice question

Which of the following would have inflationary effect on the economy? 1. RBI releasing new bonds in the market 2. RBI decreasing the SLR 3. RBI increasing the Bank Rate 4. Abolition of CRR

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. 1, 2 and 3
  2. 1 and 4 only
  3. 2 and 4 only
  4. 3 and 4 only

Correct answer and explanation

Correct answer: 2 and 4 only

Explanation: āœ… Correct Answer: C) 2 and 4 only šŸ“š Explanation: When the RBI decreases the SLR (2) or removes the CRR (4), banks have more money to lend to people. This increase in the money supply usually leads to 'inflation'. Other actions like increasing the bank rate are used to stop inflation. Therefore, only options 2 and 4 describe actions that make prices rise in the economy.