In what way does a central bank increase the money supply in an economy?

In general, modern central banks such as the ECB or BoE tend to use interest rate targeting as a way of tightening or loosening monetary policy, however occasionally the money supply is manipulated instead. This occurs through the use of open market operations. This entails the purchasing or selling of bonds in the public markets (using created currency in the case of buying). When buying bonds new money is put into the financial system leading lower interest rates and hence a boost in consumption, and when selling money is taken out of the system shifting the money supply curve left and raising rates.

ER
Answered by Edward R. Economics tutor

1974 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is the perfect technique for reaching the top marks in the longer essay questions?


Outline and evaluate the economic effects of a fall in the value of the dollar?


What is the basic economic problem?


Define the term ‘public good’ and explain why public goods suffer from the ‘free rider’ problem.


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences