Q16 of 31 Page 1

If an economy is to control recession like most of the Euro-Zone nations, which of the following can be appropriate:

i) Reducing Repo Rate


ii) Reducing CRR


iii) Both (i) and (ii)


iv) None of (i) and (ii)

. Both (i) and (ii)


Explanation.


Both repo rate and CRR is the monetary policy instrument which can be used to control the money supply in the country. The repo rate and CRR is the method of quantitative credit control method used by the central bank. Credit control methods are being used to control the inflation and deflation that is occurred in the economy. When the economy faces the deflation, the central bank will reduce the repo rate and CRR. Thus the ability of the commercial banks to lend loans will increase. This will increase the money supply in the economy.


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