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Which of the following is a tool used by the Reserve Bank of India (RBI) to cont

Practice Questions

Q1
Which of the following is a tool used by the Reserve Bank of India (RBI) to control money supply?
  1. Open market operations
  2. Fiscal policy
  3. Taxation
  4. Public expenditure

Questions & Step-by-Step Solutions

Which of the following is a tool used by the Reserve Bank of India (RBI) to control money supply?
  • Step 1: Understand that the Reserve Bank of India (RBI) is responsible for controlling the money supply in the economy.
  • Step 2: Learn that one of the tools the RBI uses to control money supply is called 'open market operations.'
  • Step 3: Know that open market operations involve the buying and selling of government securities.
  • Step 4: Realize that when the RBI buys government securities, it puts more money into the economy, increasing the money supply.
  • Step 5: Conversely, when the RBI sells government securities, it takes money out of the economy, decreasing the money supply.
  • Step 6: Conclude that open market operations are a key method for the RBI to regulate how much money is available in the economy.
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