How the following tools can be used for credit control by the central bank in an economy:
a) Open Market Operations
b) Margin Requirements
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The central bank uses tools like open market operations and margin requirements for controlling inflation and ensuring that money is there for the banks to lend.
Using open market operations, banks will purchase and sell government securities for controlling the availability of money.
If central bank finds excess money available in banks with a low rate of credit interest then they impose margin requirements.
Anticipating the future such tools are used by the central bank or else excess money can spill over loose in the economy thus increased rate of inflation as well.
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