Selling of bonds by the RBI will cause money supply to __________.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. decrease.
- Selling of bonds by the RBI will cause the money supply to decrease. When the RBI sells bonds, it absorbs money from the banking system, reducing the amount of money available in circulation. This action is typically used to control inflation and tighten monetary policy.
- By decreasing the money supply, the RBI helps in controlling inflation, contributing to overall economic stability.