{"id":91021,"date":"2025-06-01T10:44:17","date_gmt":"2025-06-01T10:44:17","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=91021"},"modified":"2025-06-01T10:44:17","modified_gmt":"2025-06-01T10:44:17","slug":"consider-the-following-statements-regarding-instruments-of-monetary-po-2","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/","title":{"rendered":"Consider the following statements regarding instruments of Monetary Po"},"content":{"rendered":"<p>Consider the following statements regarding instruments of Monetary Policy:<\/p>\n<ul>\n<li>1. The Central Bank can increase the money supply by increasing the bank rate<\/li>\n<li>2. The Central Bank can increase the money supply by purchasing securities from the public<\/li>\n<li>3. The Central Bank can decrease the money supply by increasing the cash reserve ratio<\/li>\n<\/ul>\n<p>Which of the statements given above is\/are correct ?<\/p>\n<p>[amp_mcq option1=&#8221;2 only&#8221; option2=&#8221;2 and 3 only&#8221; option3=&#8221;1 and 3 only&#8221; option4=&#8221;1, 2 and 3&#8243; correct=&#8221;option2&#8243;]<\/p>\n<div class=\"psc-box-pyq-exam-year-detail\">\n<div class=\"pyq-exam\">\n<div class=\"psc-heading\">This question was previously asked in<\/div>\n<div class=\"psc-title line-ellipsis\">UPSC CAPF &#8211; 2024<\/div>\n<\/div>\n<div class=\"pyq-exam-psc-buttons\"><a href=\"\/pyq\/pyq-upsc-capf-2024.pdf\" target=\"_blank\" class=\"psc-pdf-button\" rel=\"noopener\">Download PDF<\/a><a href=\"\/pyq-upsc-capf-2024\" target=\"_blank\" class=\"psc-attempt-button\" rel=\"noopener\">Attempt Online<\/a><\/div>\n<\/div>\n<section id=\"pyq-correct-answer\"> Statement 1 is incorrect. Increasing the bank rate is a contractionary monetary policy tool. A higher bank rate makes it more expensive for commercial banks to borrow from the central bank, which tends to decrease the money supply in the economy as banks lend less. Statement 2 is correct. When the central bank purchases securities from the public or commercial banks through Open Market Operations (OMO), it injects money into the banking system, thereby increasing the money supply. Statement 3 is correct. Increasing the Cash Reserve Ratio (CRR) requires commercial banks to hold a larger proportion of their deposits as reserves with the central bank. This reduces the amount of funds available with banks for lending, thus decreasing the money supply in the economy. <\/section>\n<section id=\"pyq-key-points\"> Central banks use various instruments like the bank rate, open market operations (OMO), and reserve ratios (CRR, SLR) to control the money supply and credit conditions, influencing inflation and economic activity. <\/section>\n<section id=\"pyq-additional-information\"> OMOs are often the most frequently used tool. A purchase of securities is expansionary, and a sale is contractionary. Changes in CRR have a significant impact as they affect the lending capacity of the entire banking system. The bank rate serves as a benchmark rate for long-term lending. <\/section>\n","protected":false},"excerpt":{"rendered":"<p>Consider the following statements regarding instruments of Monetary Policy: 1. The Central Bank can increase the money supply by increasing the bank rate 2. The Central Bank can increase the money supply by purchasing securities from the public 3. The Central Bank can decrease the money supply by increasing the cash reserve ratio Which of &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Consider the following statements regarding instruments of Monetary Po\" class=\"read-more button\" href=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/#more-91021\">Detailed Solution<span class=\"screen-reader-text\">Consider the following statements regarding instruments of Monetary Po<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1085],"tags":[1103,1120,1190],"class_list":["post-91021","post","type-post","status-publish","format-standard","hentry","category-upsc-capf","tag-1103","tag-economic-development","tag-money-banking","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Consider the following statements regarding instruments of Monetary Po<\/title>\n<meta name=\"description\" content=\"Statement 1 is incorrect. Increasing the bank rate is a contractionary monetary policy tool. A higher bank rate makes it more expensive for commercial banks to borrow from the central bank, which tends to decrease the money supply in the economy as banks lend less. Statement 2 is correct. When the central bank purchases securities from the public or commercial banks through Open Market Operations (OMO), it injects money into the banking system, thereby increasing the money supply. Statement 3 is correct. Increasing the Cash Reserve Ratio (CRR) requires commercial banks to hold a larger proportion of their deposits as reserves with the central bank. This reduces the amount of funds available with banks for lending, thus decreasing the money supply in the economy. Central banks use various instruments like the bank rate, open market operations (OMO), and reserve ratios (CRR, SLR) to control the money supply and credit conditions, influencing inflation and economic activity.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Consider the following statements regarding instruments of Monetary Po\" \/>\n<meta property=\"og:description\" content=\"Statement 1 is incorrect. Increasing the bank rate is a contractionary monetary policy tool. A higher bank rate makes it more expensive for commercial banks to borrow from the central bank, which tends to decrease the money supply in the economy as banks lend less. Statement 2 is correct. When the central bank purchases securities from the public or commercial banks through Open Market Operations (OMO), it injects money into the banking system, thereby increasing the money supply. Statement 3 is correct. Increasing the Cash Reserve Ratio (CRR) requires commercial banks to hold a larger proportion of their deposits as reserves with the central bank. This reduces the amount of funds available with banks for lending, thus decreasing the money supply in the economy. Central banks use various instruments like the bank rate, open market operations (OMO), and reserve ratios (CRR, SLR) to control the money supply and credit conditions, influencing inflation and economic activity.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/\" \/>\n<meta property=\"og:site_name\" content=\"MCQ and Quiz for Exams\" \/>\n<meta property=\"article:published_time\" content=\"2025-06-01T10:44:17+00:00\" \/>\n<meta name=\"author\" content=\"rawan239\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"rawan239\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"1 minute\" \/>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Consider the following statements regarding instruments of Monetary Po","description":"Statement 1 is incorrect. Increasing the bank rate is a contractionary monetary policy tool. A higher bank rate makes it more expensive for commercial banks to borrow from the central bank, which tends to decrease the money supply in the economy as banks lend less. Statement 2 is correct. When the central bank purchases securities from the public or commercial banks through Open Market Operations (OMO), it injects money into the banking system, thereby increasing the money supply. Statement 3 is correct. Increasing the Cash Reserve Ratio (CRR) requires commercial banks to hold a larger proportion of their deposits as reserves with the central bank. This reduces the amount of funds available with banks for lending, thus decreasing the money supply in the economy. Central banks use various instruments like the bank rate, open market operations (OMO), and reserve ratios (CRR, SLR) to control the money supply and credit conditions, influencing inflation and economic activity.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/","og_locale":"en_US","og_type":"article","og_title":"Consider the following statements regarding instruments of Monetary Po","og_description":"Statement 1 is incorrect. Increasing the bank rate is a contractionary monetary policy tool. A higher bank rate makes it more expensive for commercial banks to borrow from the central bank, which tends to decrease the money supply in the economy as banks lend less. Statement 2 is correct. When the central bank purchases securities from the public or commercial banks through Open Market Operations (OMO), it injects money into the banking system, thereby increasing the money supply. Statement 3 is correct. Increasing the Cash Reserve Ratio (CRR) requires commercial banks to hold a larger proportion of their deposits as reserves with the central bank. This reduces the amount of funds available with banks for lending, thus decreasing the money supply in the economy. Central banks use various instruments like the bank rate, open market operations (OMO), and reserve ratios (CRR, SLR) to control the money supply and credit conditions, influencing inflation and economic activity.","og_url":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/","og_site_name":"MCQ and Quiz for Exams","article_published_time":"2025-06-01T10:44:17+00:00","author":"rawan239","twitter_card":"summary_large_image","twitter_misc":{"Written by":"rawan239","Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/","url":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/","name":"Consider the following statements regarding instruments of Monetary Po","isPartOf":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#website"},"datePublished":"2025-06-01T10:44:17+00:00","dateModified":"2025-06-01T10:44:17+00:00","author":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209"},"description":"Statement 1 is incorrect. Increasing the bank rate is a contractionary monetary policy tool. A higher bank rate makes it more expensive for commercial banks to borrow from the central bank, which tends to decrease the money supply in the economy as banks lend less. Statement 2 is correct. When the central bank purchases securities from the public or commercial banks through Open Market Operations (OMO), it injects money into the banking system, thereby increasing the money supply. Statement 3 is correct. Increasing the Cash Reserve Ratio (CRR) requires commercial banks to hold a larger proportion of their deposits as reserves with the central bank. This reduces the amount of funds available with banks for lending, thus decreasing the money supply in the economy. Central banks use various instruments like the bank rate, open market operations (OMO), and reserve ratios (CRR, SLR) to control the money supply and credit conditions, influencing inflation and economic activity.","breadcrumb":{"@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/exam.pscnotes.com\/mcq\/consider-the-following-statements-regarding-instruments-of-monetary-po-2\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/exam.pscnotes.com\/mcq\/"},{"@type":"ListItem","position":2,"name":"UPSC CAPF","item":"https:\/\/exam.pscnotes.com\/mcq\/category\/upsc-capf\/"},{"@type":"ListItem","position":3,"name":"Consider the following statements regarding instruments of Monetary Po"}]},{"@type":"WebSite","@id":"https:\/\/exam.pscnotes.com\/mcq\/#website","url":"https:\/\/exam.pscnotes.com\/mcq\/","name":"MCQ and Quiz for Exams","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/exam.pscnotes.com\/mcq\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/5807dafeb27d2ec82344d6cbd6c3d209","name":"rawan239","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/exam.pscnotes.com\/mcq\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/761a7274f9cce048fa5b921221e7934820d74514df93ef195a9d22af0c1c9001?s=96&d=mm&r=g","caption":"rawan239"},"sameAs":["https:\/\/exam.pscnotes.com"],"url":"https:\/\/exam.pscnotes.com\/mcq\/author\/rawan239\/"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/91021","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/comments?post=91021"}],"version-history":[{"count":0,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/posts\/91021\/revisions"}],"wp:attachment":[{"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/media?parent=91021"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/categories?post=91021"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/exam.pscnotes.com\/mcq\/wp-json\/wp\/v2\/tags?post=91021"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}