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"Repo Rate and Bank Rate… (Class 12 Economics 2026, Q12a)

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EconomicsCBSE Class 12 · Board exam 2026, set 58/5/1 · 3 marks · Short answer

CBSE Class 12 Economics 2026: question 12(a)

Set in the CBSE Class 12 board exam of 2026, paper 58/5/1, section A, question 12(a), for 3 marks. Try it first; the hints and our step-by-step solution are below.

Q12(a) · 3 marks · Short answerMoney and Banking

"Repo Rate and Bank Rate are two different measures, but a change in either of them may have the similar implication on the money supply in an economy."

Defend or refute the given statement, giving valid explanation in support of your answer.

Source: official question paper from cbse.gov.in (PDF). See it in the full 2026 board paper, set 58/5/1.

Hints

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

Hint 1

Who lends to whom at these two rates?

Hint 2

What happens to banks' lending rates when the central bank's rate falls?

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 statement is defended. Repo rate and bank rate are both rates at which the central bank lends to commercial banks; the difference is that the repo rate is for short-term loans against government securities (with a repurchase agreement), while the bank rate is for longer-term loans without such collateral.

    1½ marks

  2. A change in either has a similar effect. A cut in the repo or bank rate lowers banks' cost of funds, so they cut their lending rates; credit becomes cheaper, borrowing rises and money supply increases. A rise in either rate has the opposite effect and reduces money supply.

    1½ marks

Answer: Defended: both are rates at which the central bank lends to banks (short-term vs long-term), so a change in either moves lending rates and money supply in the same direction.

Where the marks are

  • Defended with the meaning of the two rates and the effect on money supply (marked as a whole, 3)

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 paper2026 board paper, set 58/5/1: 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.