Which of the statements gives an accurate picture of the effect of the rise of the reverse repo rate by the central bank of a country?The demand for goods and services in the country will decreaseThe demand for goods and services in the country will increaseThe demand for goods and services in the country may increase or decreaseThere is no effect on the demand for goods and services in the country
Question
Which of the statements gives an accurate picture of the effect of the rise of the reverse repo rate by the central bank of a country?The demand for goods and services in the country will decreaseThe demand for goods and services in the country will increaseThe demand for goods and services in the country may increase or decreaseThere is no effect on the demand for goods and services in the country
Solution
The demand for goods and services in the country will decrease.
Here's why:
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The reverse repo rate is the rate at which the central bank of a country borrows money from commercial banks within the country.
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When the central bank increases the reverse repo rate, it means that commercial banks get a higher interest rate from the central bank.
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This makes it more attractive for commercial banks to lend to the central bank rather than lending to individuals or businesses.
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As a result, it becomes more difficult for individuals and businesses to get loans or they may get loans at higher interest rates.
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This can lead to a decrease in spending and investment, which in turn leads to a decrease in demand for goods and services.
Similar Questions
Which of the statements gives an accurate picture of the effect of the increase in the repo rate?The money supply in the country will decreaseThe money supply in the country will increaseThe money supply in the country will increase initially and then decreaseThere is no effect on the money supply in the country
14.Rate at which the Central Bank grants loans to commercial banks against government securities is called A. Reverse Repo Rate B. Repo Rate C. Bank Rate D. GDP at Market Price
Which of the following is a step that the central bank will take to increase the overall availability of credit?It will sell the government securities in the marketIt will buy more government securities from the marketIt will raise the reverse repo rateIt will raise the repo rate
What happens when CRR is increased?a.Decrease in inflationb.Decrease in money supplyc.Increase in demand for moneyd.All of the above
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