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Dear money policy of central bank, which is used to keep the growth steady and in-line with other economic factors, refers to
- a)Tighten the money supply in the economy
- b)Ease the money supply in the economy
- c)Allow commercial banks to work under less strict environment
- d)Both (b) and (c)
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Dear money policy of central bank, which is used to keep the growth st...
Explanation:
The primary objective of the central bank is to maintain price stability and keep the economy growing at a steady pace. To achieve this objective, the central bank uses monetary policy tools to regulate the money supply in the economy. The two main tools of monetary policy are:
1. Tightening the Money Supply:
When the central bank tightens the money supply, it reduces the amount of money in circulation in the economy. This is done by increasing interest rates, reducing the money supply, and increasing reserve requirements for commercial banks. When the money supply is tightened, it becomes more difficult for consumers and businesses to borrow money, which leads to a decrease in spending and investment. This helps to control inflation and prevent the economy from overheating.
2. Easing the Money Supply:
When the central bank eases the money supply, it increases the amount of money in circulation in the economy. This is done by reducing interest rates, increasing the money supply, and decreasing reserve requirements for commercial banks. When the money supply is eased, it becomes easier for consumers and businesses to borrow money, which leads to an increase in spending and investment. This helps to stimulate economic growth and prevent a recession.
Conclusion:
Therefore, the correct answer to the given question is option 'A' - Tighten the money supply in the economy.
The primary objective of the central bank is to maintain price stability and keep the economy growing at a steady pace. To achieve this objective, the central bank uses monetary policy tools to regulate the money supply in the economy. The two main tools of monetary policy are:
1. Tightening the Money Supply:
When the central bank tightens the money supply, it reduces the amount of money in circulation in the economy. This is done by increasing interest rates, reducing the money supply, and increasing reserve requirements for commercial banks. When the money supply is tightened, it becomes more difficult for consumers and businesses to borrow money, which leads to a decrease in spending and investment. This helps to control inflation and prevent the economy from overheating.
2. Easing the Money Supply:
When the central bank eases the money supply, it increases the amount of money in circulation in the economy. This is done by reducing interest rates, increasing the money supply, and decreasing reserve requirements for commercial banks. When the money supply is eased, it becomes easier for consumers and businesses to borrow money, which leads to an increase in spending and investment. This helps to stimulate economic growth and prevent a recession.
Conclusion:
Therefore, the correct answer to the given question is option 'A' - Tighten the money supply in the economy.
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Community Answer
Dear money policy of central bank, which is used to keep the growth st...
Dear money policy is the one where central bank becomes strict in supplying the currency in the economy.
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Dear money policy of central bank, which is used to keep the growth steady and in-line with other economic factors, refers toa)Tighten the money supply in the economyb)Ease the money supply in the economyc)Allow commercial banks to work under less strict environmentd)Both (b) and (c)Correct answer is option 'A'. Can you explain this answer?
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