True or false: controlling money supply

Exercise and reference answers

Questions

1. Statement is true

   Yes

   Statement

   When the RBI buys a government bond, the money supply increases.

2. Statement is true

   No

   Statement

   Raising the bank rate increases the money supply.

3. Statement is true

   Yes

   Statement

   Raising the reserve ratio reduces how much banks can lend.

4. Statement is true

   No

   Statement

   Outright open market operations carry a promise to reverse the trade later.

5. Statement is true

   Yes

   Statement

   The RBI is called the lender of last resort.

Instructions

Decide whether each statement about monetary policy is true or false.

Explanation