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Question
During deflation, the Central Bank usually ______.
Options
Increases CRR
Increases SLR
Increases bank rate
Increases buying Government Securities
Solution
During deflation, the Central Bank usually increases buying Government Securities.
Explanation:
During deflation, the central bank works to raise the money supply in the economy, hence increasing the demand for products. This is only conceivable if Increases buying Government Securities is chosen, which involves increasing the money supply by purchasing government assets on the market.
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