Question:
Which of the following will result an increase in the money supply?
(1) An increase in the Standing Deposit Facility Rate (SDFR)
(2) Selling bonds to the commercial banks by the Central Bank
(3) An increase in the discount rate
(4) A decrease in the external assets of the Central Bank
(5) A decrease in the statutory reserve ratio
Correct Answer:
(5)
Answer Explanation:
A decrease in the Statutory Reserve Ratio (SRR) means commercial banks are required to hold a smaller percentage of their deposits at the Central Bank. This immediately increases their excess reserves, allowing them to lend more out, which expands the money supply.
Topic: Monetary Policy Year: 2021
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