Question

Which of the following is a quantitative tool of the Reserve Bank of India (RBI)?

• A. Moral Suasion
• B. Margin Requirement
• C. Bank Rate
• D. Credit Rationing

Hint:

Quantitative tools are like a "volume knob"—they turn the entire economy's money supply up or down. Qualitative tools are like a "spotlight"—they focus on specific areas.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The RBI uses Monetary Policy instruments to control the money supply and credit in the economy. These are divided into Quantitative and Qualitative instruments.
Step 2: Detailed Explanation:
Quantitative (General) Instruments: These aim to control the overall volume of credit in the economy. Examples include Bank Rate, Repo Rate, Reverse Repo Rate, CRR, SLR, and Open Market Operations.
Qualitative (Selective) Instruments: These aim to control the flow of credit to specific sectors of the economy. Examples include Margin Requirements, Moral Suasion, and Rationing of Credit.
Among the options:
- Moral Suasion (Qualitative) involves persuasion and informal pressure.
- Margin Requirement (Qualitative) is the difference between the loan value and collateral value.
- Credit Rationing (Qualitative) involves fixing credit quotas for different business activities.
- Bank Rate (Quantitative) is the rate at which the RBI lends money to commercial banks without collateral.
Step 3: Final Answer:
Bank Rate is a quantitative tool of the RBI.