If bank rate is reduced by RBI, credit creation will be:

[amp_mcq option1=”reduced” option2=”constant” option3=”increased” option4=”None of the above” correct=”option3″]

The correct answer is C. increased.

Bank rate is the interest rate at which commercial banks borrow money from the central bank. When the bank rate is reduced, it becomes cheaper for commercial banks to borrow money from the central bank. This means that they can lend more money to their customers, which increases the amount of credit in the economy.

The other options are incorrect because:

• Option A is incorrect because reducing the bank rate will increase credit creation, not reduce it.
• Option B is incorrect because credit creation is not constant, it changes in response to changes in the bank rate.
• Option D is incorrect because the answer is C, not none of the above.