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Question
During inflation, the central bank usually:
Options
Decreases bank rate
Decreases cash reserve ratio
Increases bank rate
Buys government securities
Solution
Increases bank rate
Explanation:
During inflation, the central bank normally raises the bank rate. This makes borrowing more expensive for commercial banks, resulting in higher interest rates for individuals and companies. The greater cost of borrowing reduces the economy's money supply, which helps to keep inflation under control.
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