Question

Why is monetary policy also known as credit policy?

Options

• Because it deals only with foreign credit

• Because taxes are collected as credit

• Because bank credit forms a major part of money supply

• Because only the government gives loans

Answer 1

Because bank credit forms a major part of money supply

Explanation: 

A large part of the money supply consists of bank credit, so controlling credit effectively controls the money supply, making monetary policy a credit policy.