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Money and Banking — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsMoney and Banking3 Marks
Question
Explain how ‘bank rate’ is helpful in controlling credit creation?
✓

Answer

Bank Rate is the rate of interest which central bank charges from commercial banks on long term loans. When bank rate is raised, borrowings by commercial banks becomecostly, as a result they are forced to raise their lending rate. At higher lending rate, people borrow less. Thus credit creation by commercial banks decline.

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