Multiple choice

If Reserve Bank of India (RBI) increases repo rate, rate of interest of the loans offered by the bank ________.

  1. decreases

  2. becomes zero

  3. becomes 100%

  4. increases

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Correct Answer: increases. Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Thus, the money supply will decrease with the bank which will mean that the rate of interest on loans offered by the bank will increase. 

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