Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsBANKING AND MONETARY POLICY2 Marks
Question
How bank rate is controlled during the time of inflation?
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Answer
When the economy is under the grip of inflation, bank rate is increased in such situation commercial banks will borrow less money from $RBI$ as it is expensive to borrow.
When they borrow lesser amounts at a higher rate, they give lesser amount of loans at a higher rate to the general public and when people get fewer loans, their demand for certain goods and services falls.
This way they control the economy during inflation.
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