Readers Question: how will central bank may increase the supply of money in economy?
The money supply is the total amount of money available in the economy at a particular point in time. A narrow definition of money involves notes and coins. A broader definition includes cash plus bank and building society deposits.
Policies to Increase Money Supply
- Print Money. Central Banks can decide to print more notes and coins. This increases the money stock in a direct way.
- Reserve Ratio. Central Banks can make commercial banks keep a certain reserve ratio e.g. 5% of their deposits must be kept in cash. Higher reserves diminishes the creation of money in an economy. If Central Banks reduce minimum reserve ratios, banks can lend out more and this leads to an increase in the money supply through the money multiplier
- Purchase of Government Gilts. The Central Bank can purchase long dated government bonds from Central Banks. This increases the cash reserves of banks and lowers interest rates on gilts. In theory with greater cash reserves, banks will lend more. Also lower interest rates should encourage lending.
- Quantitative Easing. This occurs when the Central Bank electronically creates money in order to finance the purchase of bonds and securities. This should have a bigger effect on increasing the money supply than just buying bonds with existing money. Quantitative easing is often pursued during unorthodox times such as a liquidity trap and a prospect of deflation.
10 comments ↓
i wanna be a business man in future.
i wanna plan it
i aim great i hope iget there
hai firends i wanna become richest man in the world
it`s become a true when a man make to think
differently………about the future………
KARTHIKEYAN
Hi everyone first time. Hey i know its not going to be easy 4 me but i will do anything in my power to make sure i become Rich and i expect nothing less than that.Thanks for your positive attitude and you r the kind of people i wanna hang up with. Real i dnt wanna be poor at all
I am frm South Africa and i meant what i said i wanna be a business man .
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HI THIS ABHAY SINGH I WANT SEE MY LIFE AS A BIGGEST EARNER OF THIS WORLD BECAUSE I KNOW MY QUALITY THANKS AND HAVE NICE DAY.
I want to be one of the richest men in the world and am ready to learn how to get to the top…
I PRAY TO BE LIKE ALHAJI ALIKO DANGOTE,THE RICHEST MAN IN NIGERIA.
god will fulfil all ur deams..but whoever will b richest amongst u..plzz try 2 help those peoples who are dying b’cse of hunger,treatment basic needs of life.i will prey 4 all of u..who wants 2 b billionare…insha allah u will succeed. plzzzzzzzz…..plz……
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