Multiple choice

Increase in bank rates generally is followed by

  1. an increase in market rate of interest

  2. a fall in market rate of interest

  3. a rise only in the deposit rate, but not the lending rate

  4. a rise only in the lending rates
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A Correct answer
Explanation

When the central bank increases the bank rate, it raises the cost of borrowing for commercial banks. This typically leads to increased lending rates in the economy, causing market interest rates to rise as banks pass on the higher cost to borrowers.

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