16. How does an increase in the cash reserve ratio affect the economy?
a) Increases borrowing costs for commercial banks
b) Encourages banks to lend more to businesses and individuals
c) Reduces money supply in the economy
d) None of the above
17. What is the primary tool used by the Reserve Bank of India to change the money supply?
a) Repo rate
b) Reverse repo rate
c) Cash reserve ratio
d) Bank rate
18. How does the Reserve Bank of India use the bank rate?
a) To control short-term liquidity in the market
b) To provide overnight liquidity support to banks
c) To influence long-term interest rates in the economy
d) To regulate credit flow to different sectors
19. What is the objective of the liquidity adjustment facility (LAF)?
a) To provide liquidity to banks for smooth functioning of the payment system
b) To ensure banks maintain a certain portion of their deposits in liquid assets
c) To control inflation by limiting the amount of money banks can lend
d) To regulate the interest rates offered by commercial banks
20. What are open market operations (OMOs) used for?
a) To regulate interest rates offered by commercial banks.
b) To influence exchange rates in the foreign currency market
c) To control inflation by limiting the amount of money banks can lend
d) To manage liquidity in the economy by buying/selling government securities
