Question

Which of the following statements are true ?
(A) Quantitative tools control the extent of money supply by changing the CRR.
(B) There are two types of open market operations – outright and upright.
(C) A fall in the bank rate can decrease the money supply.
(D) Selling of a bond by RBI leads to reduction in quantity of reserves.
(E) The RBI can influence money supply by changing the rate at which it gives loan to the commercial
banks.
Choose the correct answer from the options given below :

• A. (A), (C) and (D) only
• B. (A), (B) and (D) only
• C. (B), (D) and (E) only
• D. (A), (D) and (E) only

Answer 1

The Correct Option is D

To determine which statements are true, we need to evaluate each statement individually:

(A) Quantitative tools control the extent of money supply by changing the CRR.
The Cash Reserve Ratio (CRR) is a quantitative tool that the central bank uses to control the money supply. By changing the CRR, the central bank influences the amount of money that banks can lend. Thus, statement (A) is true.

(B) There are two types of open market operations – outright and upright.
The correct terms are "outright" and "repo" operations. Therefore, statement (B) is false.

(C) A fall in the bank rate can decrease the money supply.
A decrease in the bank rate usually leads to an increase in money supply, as it becomes cheaper for commercial banks to borrow from the central bank and lend more. Thus, statement (C) is false.

(D) Selling of a bond by RBI leads to reduction in quantity of reserves.
When the RBI sells bonds, it takes money out of the banking system, reducing the reserves. Hence, statement (D) is true.

(E) The RBI can influence money supply by changing the rate at which it gives loan to the commercial banks.
This refers to the repo rate. By changing this rate, the RBI influences how much banks borrow, thus affecting the money supply. Therefore, statement (E) is true.

The correct statements are (A), (D), and (E). Therefore, the answer is: (A), (D) and (E) only

Answer 2

Let's analyze the statements given and determine which ones are true: 

1. Quantitative tools control the extent of money supply by changing the CRR. This statement is true. The Cash Reserve Ratio (CRR) is a quantitative tool utilized by central banks to control the money supply in the economy. By adjusting the CRR, the central bank can influence the amount of funds that banks can lend.
2. There are two types of open market operations – outright and upright. This statement is false. Open market operations typically refer to the buying and selling of government securities in the market to regulate the money supply. The terms 'outright' and 'upright' are not commonly associated with open market operations.
3. A fall in the bank rate can decrease the money supply. This statement is false. Generally, a fall in the bank rate is intended to increase money supply by making borrowing cheaper for commercial banks, encouraging them to lend more to consumers and businesses.
4. Selling of a bond by RBI leads to reduction in quantity of reserves. This statement is true. When the RBI sells bonds, it absorbs money from the banking system, thereby reducing the reserves and subsequently decreasing the money supply.
5. The RBI can influence money supply by changing the rate at which it gives loan to the commercial banks. This statement is true. By altering the repo rate (the rate at which RBI lends to commercial banks), the RBI can influence the cost of borrowing and thus control the money supply in the economy.

Based on the analysis:

• (A) is true as quantitative tools like CRR affect money supply.
• (B) is false since the types of open market operations are not 'outright' and 'upright'.
• (C) is false because a fall in the bank rate usually increases money supply.
• (D) is true because selling bonds reduces reserves.
• (E) is true because changing the loan rate to banks influences money supply.

Therefore, the correct answer is: (A), (D) and (E) only.