If the central bank wants to decrease the money supply, which of the following tools of monetary policy is most likely to be used?

CA Foundation · Business Economics · MTP · January 2025
If the central bank wants to decrease the money supply, which of the following tools of monetary policy is most likely to be used?
(A) A. Lowering the discount rate
(B) B. Conducting open market purchases of government bonds
(C) C. Increasing the reserve requirement for commercial banks
(D) D. Reducing taxes to increase consumer spending

Suggested Answer and Working Notes:

Correct Answer: Option (C)

C. Increasing the reserve requirement for commercial banks

Topics: Money Market

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