What will be the effect of rise in bank rate on money supply

Dear Student


Rise in bank rate will decrease the money supply. With rise in bank rate, commercial banks will have to pay high interest on their borrowings to central bank and in result commercial banks will also increase interest rate to be charged by commercial banks from general public on their borrowings.
As a result, borrowings by public will be reduced and there will be decrease in money supply.


Regards

  • 0
What are you looking for?