ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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raising the discount rate.
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buying government bonds.
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lowering the reserve requirement.
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raising personal income tax rates.
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Detailed explanation-1: -Central banks have four main monetary policy tools: the reserve requirement, open market operations, the discount rate, and interest on reserves. 1 Most central banks also have a lot more tools at their disposal.
Detailed explanation-2: -The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements.
Detailed explanation-3: -The Reserve Bank does not supervise the prudential soundness of banks or other financial institutions, though it does have a role in maintaining the stability of the financial system as a whole.
Detailed explanation-4: -There are two components to this instrument of monetary policy, namely – The Cash Reserve Ratio (CLR) and the Statutory Liquidity Ratio (SLR). Let us understand them both. Cash Reserve Ratio (CRR) is the portion of deposits with the commercial banks that it has to deposit to the RBI.