Q87.
If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? 1. Cut and optimise the Statutory Liquidity Ratio 2. Increase the Marginal Standing Facility Rate 3. Cut the Bank Rate and Repo Rate Select the correct answer using the code given below:
Answer
B
Explanation
Expansionist/expansionary monetary policy is when the central bank of a country increases money supply to stimulate the economy. The tools used by the RBI to control money supply in the economy can be quantitative or qualitative. Quantitative tools control the extent of money supply by changing the Cash Reserve Ratio (CRR), or Statutory Liquidity Ratio (SLR), or bank rate or Liquidity Adjustment Facility (LAF) that includes Marginal Standing Facility (MSF). If RBI changes reserve ratios, this would lead to changes in lending by the banks which, in turn, would impact the deposits and hence, the money supply. 1. SLR is the ratio of liquid assets