Question

If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?

1. Cut and optimize the Statutory Liquidity Ratio

2. Increase the Marginal Standing Facility Rate

3. Cut the Bank Rate and Repo Rate

Select the correct answer using the code given below:

1. 1 and 2 only
2. 2 only
3. 1 and 3 only
4. 1, 2 and 3

Answer 1

Correct Answer - Option 2 : 2 only

The correct answer is 2 only.

• Expansionary policy is proceeded by RBI in order to relax interest norms and to facilitate more liquidity in the market to boost the economy.
• It increased the purchasing power of employees. It is also referred to as 'easy-moderate policy'.
• Contractionary Monetary Policy- it slows the rate of growth in the money supply or outright decreases the money supply in order to control inflation.
• When a central bank tries to expand the overall money supply to boost the economy, then it is called as Accommodative Monetary Policy.

Measures taken in Expansionary and Contractionary Monetary Policy are as below-

Tool	Contractionary Policy	Expansionary Policy
Cash Reserve Ratio	Increase	Decrease
Repo Rate	Increase	Decrease
SLR	Increase	Decrease
MSFR	Increase	Decrease

The table suggests that only 2 is correct.