Which of the following actions of a Central Bank would increase the money supply in the economy? (Tick all that apply).This is a multi answer question. You can select one or more options as the answer.A.Unconventional monetary policy action through asset buyback program.B.Increasing the policy rates by the Central Bank.C.Increase in term funding facilities to financial institutions with a lower interest rate.D.Central Bank providing forward guidance to the market indicating higher future interest rates.
Question
Which of the following actions of a Central Bank would increase the money supply in the economy? (Tick all that apply).This is a multi answer question. You can select one or more options as the answer.A.Unconventional monetary policy action through asset buyback program.B.Increasing the policy rates by the Central Bank.C.Increase in term funding facilities to financial institutions with a lower interest rate.D.Central Bank providing forward guidance to the market indicating higher future interest rates.
Solution
The actions of a Central Bank that would increase the money supply in the economy are:
A. Unconventional monetary policy action through asset buyback program: When the Central Bank buys assets (like government bonds) from banks, it increases the reserves of the banks, allowing them to lend more, which increases the money supply.
C. Increase in term funding facilities to financial institutions with a lower interest rate: By providing more funding to financial institutions at a lower interest rate, the Central Bank encourages these institutions to lend more, which increases the money supply.
The other options (B and D) would typically decrease the money supply:
B. Increasing the policy rates by the Central Bank: Higher policy rates make borrowing more expensive, which can reduce the amount of borrowing and thus the money supply.
D. Central Bank providing forward guidance to the market indicating higher future interest rates: If the market expects higher future interest rates, this can lead to reduced borrowing and spending now, which can decrease the money supply.
Similar Questions
Which of the following policy actions by a country’s central bank would increase the money supply in the economy?a.Raising the interest paid on bank reserves deposited with the central bank.b.Increasing the policy rate.c.Buying government bonds through open market operations.d.Increasing the minimum reserve requirements.
Which of the following actions of a central bank would decrease the money supply in the economy?A.Increase the target interest rateB.Decrease the minimum reserve requirement.C.Reduce the interest rate paid on bank reserve.D.Buy bonds through open market operations.
Which action taken by a central bank would reflect expansionary monetary policy?A.Raising the interest that it pays to banks on the balance of their reservesB.Selling treasury securities to banks to reduce the money supplyC.Lowering the discount rate to provide more loans to banksD.Raising reserve requirements for all banks
To increase the money supply, the central bank can _____________.a.Cut taxesb.Purchase bonds in the open-marketc.Encourage people to held more cash (currency in circulation)d.Increase the government spending
Which one of the following measures of the Central bank would not lead to reduction of money supply?A.Imposing regulations to increase minimum reserve ratio of the banksB.Purchasing of government bonds from banksC.Selling of government bonds to the publicD.Increasing of cash rate (Policy rate)
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