If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?
- Cut and optimize the Statutory Liquidity Ratio
- Increase the Marginal Standing Facility Rate
- Cut the Bank Rate and Repo Rate
Select the correct answer using the code given below:
[UPSC Civil Services Exam – 2020 Prelims]
(a) 1 and 2 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (b)
Explanation:
- Expansionary policy is implemented by the RBI to ease interest norms and increase liquidity in the market, thereby stimulating the economy. It aims to enhance the purchasing power of individuals and is often referred to as an “easy-moderate policy.”
- Contractionary Monetary Policy, on the other hand, is characterized by the central bank’s efforts to slow down the growth rate of the money supply or reduce the overall money supply in order to manage inflation.
- When a central bank attempts to expand the money supply to stimulate economic growth, it is known as an accommodative monetary policy.
