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Question
In order to encourage investment in the economy, the central bank may ______.
Options
Reduce cash reserve ratio
Increase cash reserve ratio
Sell government recruiters in open market
Increase in bank rate
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Solution
In order to encourage investment in the economy, the central bank may Reduce cash reserve ratio.
Explanation:
- The central bank reduces the cash reserve ratio (CRR), allowing commercial banks to keep fewer reserves while having greater funds to lend.
- This boosts the economy's money supply and encourages investment by providing more loans to businesses and consumers at lower interest rates.
- The other options, such as raising the CRR or bank rate, would limit the money supply, discouraging investment.
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Briefly explain two qualitative methods of credit control adopted by this institution.
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