A fall in the bank rate can ___________ the money supply.
Show answer & explanation
Correct answer: D
Explanation
The correct answer is option 4 i.e. increase.
- A fall in the bank rate can increase the money supply. When the central bank (such as the Reserve Bank of India) lowers the bank rate, it becomes cheaper for commercial banks to borrow funds.
- As a result, commercial banks are more likely to borrow from the central bank and, in turn, have more funds available to lend to businesses and consumers. This increase in lending leads to an increase in the overall money supply in the economy. The increased availability of credit can stimulate spending and investment, thus boosting economic activity.