Official Answer Key & Detailed Solution
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Correct Answer: Option (D) — Central Bank is following a tight money policy
Concept & Option Breakdown
Standard Reference VerifiedBank Rate is the standard benchmark rate at which the central bank is prepared to buy or rediscount bills of exchange or lend to commercial banks. Raising the Bank Rate signals an increase in the cost of funds and credit contraction, which is the hallmark of a contractionary or 'tight money policy' aimed at curbing inflation.
Hike in policy/bank rates = Tight/Dear Money Policy (designed to suck out liquidity). Lowering rates = Easy/Cheap Money Policy.
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