Which of the following policy actions by a central bank is likely to increase the money supply?
A) Increasing the refinancing rate.
B) All of these will increase the money supply.
C) Buying government bonds in open market operations.
D) Increasing reserve requirements.

Question

Quizplus · Accepted Answer

By buying government bonds in open market operations, the central bank increases the cash reserves held by banks, which increases their ability to lend and ultimately increases the money supply. Increasing the refinancing rate and increasing reserve requirements both have the opposite effect of decreasing the money supply.

Which of the Following Policy Actions by a Central Bank