Skip to content

“With an objective… (Class 12 Economics SQP 2023-24, Q14B)

questionbuddy.in/q/cbse-12-economics-2023-24-sqp-q14b-objective-reduce-inflation-reserve-bank

EconomicsCBSE Class 12 · Sample paper, session 2023-24 · 4 marks · Very short answer

CBSE Class 12 Economics sample paper 2023-24: question 14(B)

From the official CBSE sample question paper for 2023-24, section A, question 14(B), for 4 marks. Try it first; the hints and our step-by-step solution are below.

Q14(B) · 4 marks · Very short answerMoney and Banking

“With an objective to reduce inflation, Reserve Bank of India may promote the commercial banks to park their surplus funds with it.”
Discuss the rationale behind the step taken by the Reserve Bank of India.

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2023-24.

Hints

Open one hint at a time and try again before the next.

Hint 1

What rate do banks earn when they lend to the RBI?

Hint 2

Less bank lending means less spending.

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. The step refers to the reverse repo rate: the rate at which commercial banks can park their surplus funds with the central bank.

    1 mark

  2. To reduce inflation, the RBI raises the reverse repo rate.

    1 mark

  3. A higher return makes it more attractive for banks to park surplus funds with the RBI instead of lending them, so their lending capacity falls.

    1 mark

  4. Less credit reduces aggregate demand, which curbs inflation.

    1 mark

Answer: The RBI raises the reverse repo rate, so banks park more funds with it and lend less; lower credit cuts AD and inflation.

Where the marks are

  • Rationale explained (marked as a whole, 4)

Revise the chapter

Practise this chapterBoard-style questions from Money and Banking, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2023-24: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.