Question

During the time of inflation, the Central Bank will _ _ _ _ _ _ _ in order to control the inflation.

• A. Buy Government Securities
• B. Decrease the Cash Reserve Ratio
• C. Sell Government Securities
• D. Increase the Statutory Liquidity Ratio

Hint:

In times of inflation, central banks sell government securities to reduce the money supply and control inflationary pressures.

Answer 1

The Correct Option is C

During inflationary periods, the Central Bank typically takes measures to reduce the money supply to control inflation. Selling government securities reduces the money supply in the economy by taking money out of circulation. This helps in controlling inflation.

- (A) Buy Government Securities: Buying government securities would inject more money into the economy, which is typically done during deflation, not inflation.

- (B) Decrease the Cash Reserve Ratio: Decreasing the Cash Reserve Ratio would make more money available for banks to lend, which could increase inflation.

- (D) Increase the Statutory Liquidity Ratio: Increasing the Statutory Liquidity Ratio would reduce the amount of money banks can lend, but selling government securities is a more direct measure to control inflation.

Final Answer: (C) Sell Government Securities.