Macroeconomics: Money and Banking · Class 12 · CBSE · Commerce Economics
Which action by the central bank is most likely to reduce the money supply in the economy?
Practice question from Macroeconomics: Money and Banking (Class 12 · CBSE · Commerce Economics), with the correct answer and a step-by-step solution.
medium · MCQ · Q-FFC3DA
Which action by the central bank is most likely to reduce the money supply in the economy?
- A.Purchasing government securities in the open market
- B.Selling government securities in the open marketCorrect answer
- C.Reducing the bank rate
- D.Reducing the cash reserve ratio
Solution
When the central bank sells government securities, money moves from commercial banks and the public to the central bank. This reduces the lending capacity of commercial banks and contracts the money supply.
More from Macroeconomics: Money and Banking
- Which function of money is reflected when a person keeps money in a savings account to use it for purchasing goods in the future?
- If the cash reserve ratio is 20% and banks lend all their excess reserves, with no cash leakages, an initial deposit of ₹10,000 can lead to…
- Why is the central bank called the lender of last resort?
- Which statement correctly describes demand deposits with commercial banks?
Practise more Economics
Sign up free for adaptive practice on this chapter, with instant feedback and hints on every question.
Start practising freeFree to start · No credit card needed