Question : ___________ is a monetary policy tool used by the central bank to control the money supply in the economy.
Option 1: Open market operations
Option 2: Bank rate
Option 3: Credit rationing
Option 4: Capital adequacy ratio (CAR)
Correct Answer: Open market operations
Solution : The correct answer is (a) Open market operations.
Open market operations are a monetary policy tool used by the central bank to control the money supply in the economy. It involves the buying and selling of government securities, such as Treasury bills and bonds, in the open market.
Open market operations are flexible and effective in influencing the money supply and interest rates in the economy. By adjusting the volume and frequency of these operations, the central bank can manage liquidity and regulate economic conditions.
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