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    Question

    An increase in the Bank Rate generally indicates that

    the :
    A market rate of interest is likely to fall Correct Answer Incorrect Answer
    B Central Bank is no longer making loans to commercial banks Correct Answer Incorrect Answer
    C Central Bank is following an easy money policy Correct Answer Incorrect Answer
    D Central Bank is following a tight money policy Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    A tight monetary policy is a course of action undertaken by Central bank to constrict spending in an economy, or to curb inflation when it is rising too fast. The increased bank rate increases the cost of borrowing and effectively reduces its attractiveness.

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