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| 1. |
Explain how 'Repo Rate' canbe helpfulin controllingcredit creation . |
| Answer» SOLUTION :Repo rate is the rate of interest at which the central bank LENDS money to the COMMERCIAL banks for a short period of time.Repo rate can be very useful in controlling credit creation.If the repo rate is increased, the cost of borrowing BECOMES costlier than before.So, the banks increase their rate of interest in return.The cost of borrowing increases for the people and they BORROW less. Thus, the banks reduces its level of credit creation. | |