ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A decrease in income tax rates
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A decrease in government spending
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Open-market purchase of securities by the central bank
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Increased borrowing by the federal government by issuing new bonds
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An increase in the discount rate
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Detailed explanation-1: -Borrowing by the government from the Central Bank will increase the money supply in the economy, because it will be spent by the government on public.
Detailed explanation-2: -1 Answer. D. Fall in repo rate, Purchase of securities in open market and Decrease in cash reserve ratio will increase the money supply.
Detailed explanation-3: -The money supply can rise if Central Banks print more money. Banks choose to hold a lower liquidity ratio. This means banks will be willing to lend a larger proportion of their funds.
Detailed explanation-4: -Conducting monetary policy If the Fed, for example, buys or borrows Treasury bills from commercial banks, the central bank will add cash to the accounts, called reserves, that banks are required keep with it. That expands the money supply.