The Central Bank can reduce the Money Supply in the economy by ______ the _______. (Fill up the blanks with the correct alternative.)
Show Hint
- increasing, bank rate
- decreasing, cash reserve ratio
- decreasing, bank rate
- buying, government securities
The Correct Option is A
Solution and Explanation
The Central Bank reduces the money supply by increasing the bank rate. A higher bank rate makes borrowing more expensive for commercial banks, leading to reduced credit availability in the economy and contraction in the money supply.
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