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True or false: statements on how the RBI moves money supply.

Exercise and reference answers

Questions
  1. Statement is true
    Yes
    Statement
    When the RBI buys government bonds, money supply rises.
  2. Statement is true
    No
    Statement
    Raising the bank rate increases money supply.
  3. Statement is true
    No
    Statement
    A higher reserve ratio lets banks create more credit.
  4. Statement is true
    Yes
    Statement
    The RBI is the lender of last resort to commercial banks.
  5. Statement is true
    Yes
    Statement
    Currency issued by the RBI is called high-powered money.
  6. Statement is true
    No
    Statement
    A repo is a permanent injection of money.
Instructions
Decide whether each statement is true.

Explanation

Buying bonds pays reserves into the system and raises money supply selling does the reverse. A higher bank rate makes borrowing dearer and shrinks supply. A higher reserve ratio leaves less to lend, so credit creation falls. A repo carries an agreed resale date, so unlike an outright purchase it is temporary.
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