An increase in the Bank Rate generally indicates that the

1. market rate of interest is likely to fall
2. Central Bank is no longer making loans to commercial banks
3. Central Bank is following an easy money policy
4. Central Bank is following a tight money policy

Explanation

Option (d) is correct

• Bank rate is the rate charged by the central bank for lending funds to commercial banks. When the Bank Rate is increased, it becomes more expensive for commercial banks to borrow from the central bank.
• This discourages borrowing and reduces the money supply in the economy, which is a characteristic of a tight money policy. A tight money policy is typically used to control inflation and reduce excessive lending or borrowing in the economy.

Answer: (d) Central Bank is following a tight money policy; Difficulty Level: Easy