Consider the following statements regarding instruments of Monetary Policy: 1. The Central Bank can increase the money supply by increasing the bank rate 2. The Central Bank can increase the money supply by purchasing securities from the public 3. The Cen

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Q: 35 (CAPF/2024)
Consider the following statements regarding instruments of Monetary Policy:
1. The Central Bank can increase the money supply by increasing the bank rate
2. The Central Bank can increase the money supply by purchasing securities from the public
3. The Central Bank can decrease the money supply by increasing the cash reserve ratio
Which of the statements given above is/are correct?

question_subject: 

Economics

question_exam: 

CAPF

Statement 1 is incorrect because increasing the bank rate does not increase money supply; it generally reduces it by making borrowing more expensive. Statement 2 is correct as purchasing securities injects money into the economy, increasing supply. Statement 3 is correct because increasing the cash reserve ratio reduces money supply by limiting the amount banks can lend.