A central bank can "create" money by

Question

Quizplus · Accepted Answer

When a central bank purchases government securities on the open market, it injects new money into the economy. This is known as "quantitative easing" and is a common tool used by central banks to stimulate the economy. Option A is incorrect as increasing the rate of inflation reduces the value of money rather than creating new money. Option C is incorrect as selling government Treasury bills would reduce the money supply, not create new money. Option D is incorrect as issuing Central Bank bonds would require borrowing money rather than creating it. Option E is incorrect as selling foreign currency reserves would simply exchange one form of currency for another, not create new money.

A Central Bank Can "Create" Money by