JAMB Exam > JAMB Questions > Which of the following is NOT a monetary poli...
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Which of the following is NOT a monetary policy instrument?
- a)Cash Reserve Ratio (CRR)
- b)Budget deficit
- c)Bank Rate
- d)Open Market Operations (OMO)
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
Which of the following is NOT a monetary policy instrument?a)Cash Rese...
Explanation:
Cash Reserve Ratio (CRR)
- Cash Reserve Ratio (CRR) is a monetary policy instrument used by central banks to control the amount of cash that commercial banks are required to hold as reserves.
- By adjusting the CRR, the central bank can influence the liquidity in the banking system, which in turn affects the lending capacity of banks and ultimately impacts the money supply in the economy.
Bank Rate
- The bank rate is the rate at which the central bank lends money to commercial banks.
- By changing the bank rate, the central bank can influence the cost of borrowing for banks, which in turn affects the interest rates in the economy and ultimately the money supply.
Open Market Operations (OMO)
- Open Market Operations (OMO) involve buying and selling government securities in the open market to control the money supply.
- When the central bank buys government securities, it injects money into the banking system, increasing the money supply. Conversely, when it sells government securities, it withdraws money from the banking system, reducing the money supply.
Budget Deficit
- A budget deficit occurs when government spending exceeds government revenue.
- While budget deficits can have an impact on the economy, they are not considered a monetary policy instrument. Budget deficits are usually addressed through fiscal policy measures such as taxation and government spending adjustments, rather than through direct control of the money supply by the central bank.
Cash Reserve Ratio (CRR)
- Cash Reserve Ratio (CRR) is a monetary policy instrument used by central banks to control the amount of cash that commercial banks are required to hold as reserves.
- By adjusting the CRR, the central bank can influence the liquidity in the banking system, which in turn affects the lending capacity of banks and ultimately impacts the money supply in the economy.
Bank Rate
- The bank rate is the rate at which the central bank lends money to commercial banks.
- By changing the bank rate, the central bank can influence the cost of borrowing for banks, which in turn affects the interest rates in the economy and ultimately the money supply.
Open Market Operations (OMO)
- Open Market Operations (OMO) involve buying and selling government securities in the open market to control the money supply.
- When the central bank buys government securities, it injects money into the banking system, increasing the money supply. Conversely, when it sells government securities, it withdraws money from the banking system, reducing the money supply.
Budget Deficit
- A budget deficit occurs when government spending exceeds government revenue.
- While budget deficits can have an impact on the economy, they are not considered a monetary policy instrument. Budget deficits are usually addressed through fiscal policy measures such as taxation and government spending adjustments, rather than through direct control of the money supply by the central bank.
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Which of the following is NOT a monetary policy instrument?a)Cash Rese...
Budget deficit is not a monetary policy instrument. It refers to the situation when government expenditures exceed its revenues, leading to borrowing and an increase in the fiscal deficit. Monetary policy instruments are tools used by the central bank to regulate the money supply and influence economic conditions.
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Which of the following is NOT a monetary policy instrument?a)Cash Reserve Ratio (CRR)b)Budget deficitc)Bank Rated)Open Market Operations (OMO)Correct answer is option 'B'. Can you explain this answer?
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