Which of the following is a step that the central bank will take to increase the overall availability of credit?It will sell the government securities in the marketIt will buy more government securities from the marketIt will raise the reverse repo rateIt will raise the repo rate
Question
Which of the following is a step that the central bank will take to increase the overall availability of credit?It will sell the government securities in the marketIt will buy more government securities from the marketIt will raise the reverse repo rateIt will raise the repo rate
Solution
The central bank will increase the overall availability of credit by buying more government securities from the market.
Here's why:
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When the central bank buys government securities, it is essentially injecting money into the economy. This increases the amount of funds that commercial banks have at their disposal.
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With more funds, commercial banks can lend more to businesses and individuals. This increases the overall availability of credit in the economy.
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The other options listed (selling government securities, raising the reverse repo rate, and raising the repo rate) are actions that the central bank would take to decrease the availability of credit. These actions remove money from the economy and make it more expensive for banks to borrow from the central bank, which in turn makes it more expensive for businesses and individuals to borrow from banks.
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