2013 · EconomyPrevious Year Question
Q93.
An increase in the Bank Rate generally indicates that the
A. market rate of interest is likely to fall
B. Central Bank is no longer making loans to commercial banks
C. Central Bank is following an easy money policy
D. Central Bank is following a tight money policy
Answer

D

Explanation

An increase in bank rate generally implies an increase in market rate of interest (so a is wrong). Option b is obviously wrong. Option c is wrong — easy money policy means the central bank provides money at a cheaper rate so that money supply can increase. Increasing bank rate = tight (contractionary) money policy.