Monetary Policy

Choose the Correct Answer

Correct Answer : Option c

Explanation
Raising the Cash Reserve Ratio (CRR): This action would decrease the money supply because it requires banks to hold a higher percentage of their deposits with the Reserve Bank of India, leaving them with less money to lend out.
Decreasing the repo rate: This action would increase the money supply. When the RBI decreases the repo rate, it becomes cheaper for commercial banks to borrow money from the RBI, encouraging them to lend more and thus increasing the money supply in the economy.
Selling government securities in the open market: This action would decrease the money supply. When the RBI sells government securities, it takes money out of circulation, reducing the money supply.
Increasing the reverse repo rate: This action would decrease the money supply. The reverse repo rate is the rate at which the RBI borrows money from commercial banks. An increase in the reverse repo rate would incentivize banks to park more money with the RBI, thereby reducing the money supply.