Q.To control inflation, the central bank will normally:
(A) Lower the bank rate and buy securities
(B) Raise the bank rate and sell securities
(C) Lower the cash reserve ratio
(D) Buy government securities in the open market

Fighting inflation means making credit scarcer and dearer, so every correct step points in the tightening direction.

Raising the bank rate makes borrowing costlier, and selling securities drains cash out of banks — both shrink the credit available and cool down inflation. Lowering the bank rate/CRR or buying securities would expand credit, the opposite of what inflation control requires.

Section d explains that every quantitative tool follows one logic: to fight inflation the RBI makes credit scarcer and dearer, and to fight recession it makes credit plentiful and cheaper.

During inflation, too much credit is chasing goods and pushing prices up, so the RBI contracts credit. Two contractionary steps appear together in option (B): raising the bank rate, which makes borrowing from the RBI costlier so banks raise their own lending rates and loans fall; and selling government securities in the open market, which pulls cash out of the banking system, reduces banks' reserves, and shrinks their power to create credit.

The other options all expand credit, which is what the RBI does to fight a slowdown, not inflation: lowering the bank rate and buying securities (A), lowering the cash reserve ratio (C), and buying securities (D) all put more lendable funds into the system. They are therefore the wrong direction for controlling inflation.

The single most common error is confusing the direction. Fix the logic once: inflation -> tighten (raise rates/CRR, SELL securities); recession -> loosen (lower rates/CRR, BUY securities).