If the Central Bank increases its bank rate?

A. many banks will shut down their operations
B. customers will borrow more from banks
C. the supply of money may be reduced
D. interest charges by banks will fall

Correct Answer:

Option C – the supply of money may be reduced

Explanation

A rise in the bank rate means that the interest charge from commercial banks will increase their interest which reduce the borrowing by general public and interest rate is high, so the money supply would decrease.