BANKING AFFAIRS

Detailed explanation-1: -By lowering the reserve requirements, banks are able to loan more money, which increases the overall supply of money in the economy. Conversely, by raising the banks’ reserve requirements, the Fed is able to decrease the size of the money supply.

Detailed explanation-2: -Central banks conduct monetary policy by adjusting the supply of money, usually through buying or selling securities in the open market. Open market operations affect short-term interest rates, which in turn influence longer-term rates and economic activity.

Detailed explanation-3: -A rise in the bank rate means that the interest charge from commercial banks will increase and it would force commercial banks to increase their interest which will reduce the borrowing by general public and interest rate is high, so the money supply would decrease.

Detailed explanation-4: -If it wants to reduce the amount of money in the economy, it can increase the reserve requirement. This means that banks have less money to lend out and will thus be pickier about issuing loans.