The central bank Can reduce the ability of commercial banks to give out loans by

Analyze the question: The question asks which action by the central bank reduces commercial banks' ability to give loans. This is about monetary policy tools used to control credit (money supply).

Concept: To restrict credit, the central bank uses contractionary (tight) monetary policy. The main tools are:

• Bank rate (minimum rediscount/monetary policy rate): the rate at which the central bank lends to commercial banks. Raising it makes borrowing from the central bank costly, so commercial banks raise their own lending rates. Loan demand and loan supply fall.
• Special deposits: commercial banks must deposit funds with the central bank. Increasing these reduces the cash available for loans.
• Liquidity ratio / cash reserve ratio: Increasing the ratio forces banks to keep more cash and lend less.
• Open market operations: selling securities takes money out of circulation.

Step-by-step evaluation:

• A. Raising the bank rate: Borrowing becomes more expensive, so credit shrinks. This reduces lending ability. ✔
• B. Reducing special deposits: This releases funds to banks, so they can lend more. ✘
• C. Reducing the liquidity ratio: Banks can keep less in reserve and lend more. ✘
• D. Issuing more currency: This increases the money supply and expands lending capacity. ✘

Answer: The correct option is A. raising the bank rates.

Tip: Remember "Raise to Restrain, Reduce to Release." Raising the bank rate, liquidity ratio, or special deposits restrains credit. Reducing them releases more credit. In this question, only option A is a "raise" that restrains lending.