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Chapter 3- Policy tools to control money supply
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This lesson explains about different policy tools used by RBI to control money supply in Indian economy

Arpita Prakash
YouTuber NCERTs series initiator at Unacademy 'Educator of the Month' for Feb'19 CBSE 0.1% Merit Certificate holder in Mathematics

Unacademy user
  1. POLICY TOOLS TO CONTROL MONEY SUPPLY Only Institution to issue currency- RBI To create more credit, Commercial banks- either go to market or to Central bank RBI's role-to lend to banks at all times-lender of last resort-provides funds through various instruments RBl uses different tools to control money supply: Quantitative tools- control extent of money supply by changing CRR, or bank rate, or OMOs . Qualitative tools- Moral suasion, margin requirement etc fpersuasion by Central bank to make commercial banks discourage or encourage lending ) o If more increase in CRR>money supply falls . Another tool- OMOs- Open Market Operations Buying and selling of bonds issued by the Government in open market Purchase and sale is entrusted to the Central bank on behalf of Government RBI pays for a Government bond in open market by giving a cheque, which increases total money reserves and hence money supply. Two types of OMOs- Outright and Repo