Chapter 10, Problem 7Q

To determine

The reason why imposing bank capital requirements on banks help in limiting the risk taking

Introduction:

Monetary policy is used by the central bank to control the liquidity of money from the economy to bring the economy to a stable condition. This is done through management of interest rate, marginal requirements, and the money supply. Objectives of a monetary policy are high employment and output stability, economic growth, stability of financial markets, interest rate stability, and stability in foreign exchange markets.