When the State Bank wants to decrease money supply in the country, it _______________?
Correct answer: B. Sells govt. securities
- A. Buys govt. securities in stock market
- B. Sells govt. securities
- C. Lowers discount rate
- D. B and C of above
Explanation
Selling government securities withdraws money from purchasers and reduces the reserves available to commercial banks for lending. Buying securities would have the opposite expansionary effect, while lowering the discount rate usually increases money supply.
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