The correct answer is: A. Increase CRR and decrease Bank rate.
The CRR (cash reserve ratio) is the percentage of deposits that banks are required to keep with the Reserve Bank of India. The bank rate is the interest rate at which the Reserve Bank of India lends money to commercial banks.
When the Reserve Bank of India increases the CRR, it reduces the amount of money that banks have available to lend. This reduces the amount of credit in the economy, which can help to control inflation.
When the Reserve Bank of India decreases the bank rate, it makes it cheaper for banks to borrow money from the Reserve Bank of India. This can encourage banks to lend more money, which can increase the amount of credit in the economy.
Therefore, in order to control credit, the Reserve Bank of India should increase the CRR and decrease the bank rate.
Here is a brief explanation of each option:
- Option A: Increase CRR and decrease Bank rate. This is the correct answer. As explained above, this will reduce the amount of money that banks have available to lend, which will reduce the amount of credit in the economy.
- Option B: Decrease CRR and reduce Bank rate. This will increase the amount of money that banks have available to lend, which will increase the amount of credit in the economy. This is not the desired outcome when trying to control credit.
- Option C: Increase CRR and increase Bank rate. This will further reduce the amount of money that banks have available to lend, which will have an even greater impact on credit. This is not a desirable option, as it could lead to a credit crunch.
- Option D: Reduce CRR and increase Bank rate. This will increase the amount of money that banks have available to lend, while also making it cheaper for banks to borrow money. This will have a significant impact on credit, and could lead to an increase in inflation. This is not the desired outcome when trying to control credit.