PRC-3 · Chapter 19 · Question 4 of 17
When a central bank decides to aggressively 'buy' millions in government securities from commercial banks through Open Market Operations, what is its primary objective?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) To inject cash into the banking system to increase the money supply and encourage lending
Explanation
Buying bonds means the central bank pays cash to commercial banks, increasing their reserves, which allows them to lend more money to the public, stimulating the economy.
More Monetary Policy MCQs
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- Q10The country is suffering from out-of-control inflation. The Central Bank initiates a 'contractionary' monetary policy to cool the economy…