Answered: central bank can increase the money…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 13P

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A central bank can increase the money supply by:

Select one:

changing the quantities of required and excess reserves by altering the legal reserve ratio.

changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks.

changing the bank reserves through the sale or purchase of government securities.

reducing the discount rate to reduce the cost of borrowing from the central bank.

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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