Which of the following actions that a central bank take to reduce inflation?This is a multi answer question. You can select one or more options as the answer.A.Purchase government bonds from banks or the public through open-market purchases.B.Increase the cash rate.C. Increase minimum reserve ratio.D.Reduce interest rate on reserve accounts.
Question
Which of the following actions that a central bank take to reduce inflation?This is a multi answer question. You can select one or more options as the answer.A.Purchase government bonds from banks or the public through open-market purchases.B.Increase the cash rate.C. Increase minimum reserve ratio.D.Reduce interest rate on reserve accounts.
Solution
To reduce inflation, a central bank can take several actions. Here are the options from your list that would help to reduce inflation:
A. Purchase government bonds from banks or the public through open-market purchases: This action would actually increase the money supply and potentially increase inflation, so it's not a correct answer.
B. Increase the cash rate: This is correct. By increasing the cash rate (or interest rate), borrowing becomes more expensive. This reduces spending and slows down the economy, which can help to reduce inflation.
C. Increase minimum reserve ratio: This is also correct. By increasing the minimum reserve ratio, banks are required to hold more money and can lend out less. This reduces the money supply, which can help to reduce inflation.
D. Reduce interest rate on reserve accounts: This action would actually encourage banks to hold more money in reserve accounts and lend out less, which could help to reduce inflation. However, it's not a typical action taken by central banks to combat inflation, so it's not a correct answer.
So, the correct answers are B and C.
Similar Questions
If a central bank wants to combat a period of high inflation using monetary policy, which of the following actions should it most likely take?A.Purchase government bonds in the open market.B.Decrease the policy interest rate.C.Offer banks incentives to decrease their lending.D.Increase the minimum reserve requirement for banks
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 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.
Which of the following policy actions by a country’s central bank would increase the money supply in the economy?a.Decreasing the policy rate.b.Increasing the minimum reserve requirements.c.Selling government bonds through open market operations.d.Raising the interest paid on bank reserves deposited with the central bank.
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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