CBSE 2016 Class 12 Economics Delhi Set-2

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Question : 2
Total: 3
Explain how 'bank rate' is helpful in controlling credit creation?
Solution:  
Bank rate is the at which the central bank provides credit to commercial banks. An increase or decrease in the bank rate leads to an increase or decrease in the market rate of interest. Thereby the cost of credit changes in the market. During inflation income in the bank rate increases the cost of capital which reduces the flow of credit.
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