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Zorluk: ZorCentral Bank: Functions and Monetary Policy Instruments

To combat an economic recession and stimulate private sector credit creation, a central bank intends to implement an expansionary policy strictly through quantitative monetary instruments. Which of the following policy combinations achieves this objective?

  1. Lowering the cash reserve ratio and purchasing government securities in the open marketCevap
  2. B
    Issuing direct credit guidelines to priority sectors while increasing the bank rediscount rate
  3. C
    Raising the minimum liquidity ratio and appealing to commercial bank executives via moral suasion
  4. D
    Selling treasury bills in the open market while reducing margin requirements on commercial loans

Cevap

Lowering the cash reserve ratio and purchasing government securities in the open market
Lowering the cash reserve ratio decreases the proportion of deposits commercial banks must keep idle with the central bank, freeing up funds for lending. Simultaneously, buying treasury bills through Open Market Operations (OMO) injects central bank liquidity directly into commercial bank vaults. Both tools are quantitative instruments operating in an expansionary direction.

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1
Identify the required policy goal and classification constraint
The target is an expansionary monetary policy (increasing money supply/credit) using strictly quantitative instruments (general tools affecting overall credit volume).
Quantitative tools include Cash Reserve Ratio (CRR), Liquidity Ratio, Bank/Rediscount Rate, and Open Market Operations (OMO).
2
Analyze the directional impact of each quantitative instrument
Lowering the Cash Reserve Ratio releases more deposit funds for lending. Purchasing government securities via OMO injects cash directly into bank reserves.
Both measures expand commercial bank reserves and lower borrowing costs, stimulating economic activity during a recession.
3
Filter out selective instruments and contractionary measures in other choices
Options containing direct credit directives, moral suasion, or margin requirements utilize selective instruments. Options that raise reserve requirements or sell treasury bills act contractionarily.
Selective instruments target specific sectors or rely on persuasion, failing the strict quantitative instrument requirement.

Anahtar Kavram

Quantitative vs Selective Monetary Policy Instruments and Directional Impact
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Konular

Central Bank: Functions and Monetary Policy Instruments

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