Which of the statements gives an accurate picture of the effect of the increase in the repo rate?The money supply in the country will decreaseThe money supply in the country will increaseThe money supply in the country will increase initially and then decreaseThere is no effect on the money supply in the country
Question
Which of the statements gives an accurate picture of the effect of the increase in the repo rate?The money supply in the country will decreaseThe money supply in the country will increaseThe money supply in the country will increase initially and then decreaseThere is no effect on the money supply in the country
Solution
The statement that gives an accurate picture of the effect of the increase in the repo rate is: "The money supply in the country will decrease."
Here's why:
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The repo rate is the rate at which the central bank of a country (like the Federal Reserve in the U.S. or the Reserve Bank of India) lends money to commercial banks in the event of any shortfall of funds.
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When the repo rate increases, borrowing from the central bank becomes more expensive for commercial banks.
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As a result, commercial banks may reduce the amount of money they borrow from the central bank.
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This can lead to a decrease in the money that commercial banks have available to lend to their customers.
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Therefore, the overall money supply in the country can decrease.
So, the increase in the repo rate can lead to a decrease in the money supply in the country.
Similar Questions
Which of the statements gives an accurate picture of the effect of the rise of the reverse repo rate by the central bank of a country?The demand for goods and services in the country will decreaseThe demand for goods and services in the country will increaseThe demand for goods and services in the country may increase or decreaseThere is no effect on the demand for goods and services in the country
What aspect of the repo rate change concerns you the most?Select one or moreLoan interest rates0Savings account interest rates1Inflation control0Overall economic impact
What happens when CRR is increased?a.Decrease in inflationb.Decrease in money supplyc.Increase in demand for moneyd.All of the above
An increase in the interest rateA) increases the demand for money.B) increases the quantity of money demanded.C) decreases the demand for money.D) decreases the quantity of money demanded.
In the figure above, illustrates the effect of an increased rate of money supply growth attime period 0. From the figure, one can conclude that theA) liquidity effect is smaller than the expected inflation effect and interest rates adjustquickly to changes in expected inflation.B) liquidity effect is larger than the expected inflation effect and interest rates adjust quicklyto changes in expected inflation.C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowlyto changes in expected inflation.D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowlyto changes in expected inflation.
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