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    Question

    What is the impact of an increase in the reverse repo

    rate?
    A Reduces liquidity and makes home loans costlier. Correct Answer Incorrect Answer
    B Reduces liquidity only. Correct Answer Incorrect Answer
    C Makes home loans more affordable and increases money flow. Correct Answer Incorrect Answer
    D Increases money flow only. Correct Answer Incorrect Answer

    Solution

    An increase in the reverse repo rate generally tightens the liquidity in the banking system as banks are incentivized to park more funds with the central bank, reducing money available for loans and potentially slowing economic activity.

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