The RBI raises the repo rate. Which chain of effects follows?

Banks' cost of funds falls → lending rates fall → spending risesCorrect answerYour answerCRR rises → money multiplier rises → money supply risesCorrect answerYour answerTaxes rise → disposable income falls → consumption fallsCorrect answerYour answerBanks' cost of funds rises → lending rates rise → borrowing and spending fall → demand and prices easeCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

A repo rise works through banks' borrowing costs and then through loan rates.
Taxes are fiscal policy, not a result of the repo rate.

Concept: How the repo rate works
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsRepo, reverse repo and bank rate

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The RBI raises the repo rate. Which chain of effects follows?

Explanation