2013 GS Paper I, all questions
UPSC Prelims 2013 · GS Paper I
Question 43: Economy and Social Development
An increase in the Bank Rate generally indicates that the
amarket rate of interest is likely to fall
bCentral Bank is no longer making loans to commercial banks
cCentral Bank is following an easy money policy
dCentral Bank is following a tight money policy
AnswerUPSC’s answer is (d).
The Bank Rate is the rate at which the central bank lends to commercial banks. When it rises, borrowing from the central bank becomes costlier, so banks raise their own lending rates, credit becomes dearer and the demand for loans and the money supply fall. This is a tight, or dear, money policy used to check inflation. Market interest rates rise, not fall, and the central bank continues to lend.
Why each option is right or wrong
- (a) Wrong. Market interest rates tend to rise, not fall.
- (b) Wrong. The central bank continues to lend, but at a higher rate.
- (c) Wrong. A higher rate is a tight money policy, not an easy one.
- (d) Correct. A rise in the Bank Rate signals tight money.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2013, General Studies Paper I, Series A. The paper on upsc.gov.in.