Match each monetary policy action executed by a central bank on the left with its corresponding macroeconomic objective and operational mechanism on the right.
- Increasing the Cash Reserve Ratio (CRR) while aggressively executing Open Market Sales of treasury billsDirectly reduces the monetary base and impounds commercial banks' excess reserves to curb systemic demand-pull inflation.
Answer
Increasing the CRR and selling treasury bills matches reducing the monetary base to curb demand-pull inflation. Decreasing the Bank Rate and lowering the Liquidity Ratio matches expanding loanable funds to fight recessions. Imposing selective credit controls matches rationing credit to inflationary sectors while preserving essential sectors. Employing moral suasion and special deposits matches combining informal persuasion with mandatory liquidity freezing.
The correct pairings accurately match each central bank policy combination to its intended economic goal and operational mechanism. Contractionary quantitative tools (higher CRR and OMO sales) curb demand-pull inflation by reducing excess reserves. Expansionary quantitative tools (lower Bank Rate and Liquidity Ratio) boost liquidity to fight recessions. Selective credit controls target specific sector allocations, and moral suasion combined with special deposits utilizes persuasive guidance backed by targeted reserve freezes.
Step-by-Step Solution
Key Concept
Monetary Policy Tools and Macroeconomic Stabilization
Estimated Time:2m 0s