CBSE 2022 Class 12 Economics Outside Delhi Set 1 (Term 2)
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Question : 14 of 19
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If in an economy Bank rate is increased, how will it affect the demand for credit? Explain.
Solution:
Bank Rate: It is the rate of interest at which Central bank of a country gives loan to the Commercial banks for long period.
Effect of Increase in Bank Rate on Credit:
1. Central Bank increases bank rate at the time of excess demand in the economy.
2. As a follow up action, Commercial banks increase lending rates.
3. Due to this, credit becomes dearer.
4. Thus, it leads to fall in demand for credit.
Effect of Increase in Bank Rate on Credit:
1. Central Bank increases bank rate at the time of excess demand in the economy.
2. As a follow up action, Commercial banks increase lending rates.
3. Due to this, credit becomes dearer.
4. Thus, it leads to fall in demand for credit.
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