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JAMB Economics 1994 Question 39

Question 39

Money and Inflation

Monetary policy aimed at reducing demand-pull inflation in the country may be carried out through

  1. A.increase in taxation of private companies, public corporations and private individuals
  2. B.increase in cash reserve ratio of commercial banks and the sale of government securities
  3. C.decrease in government expenditure on education
  4. D.direct price control in the market place
Show the answer and explanation

Answer: B (increase in cash reserve ratio of commercial banks and the sale of government securities)

Explanation

Monetary policy works through money and credit: raising the cash reserve ratio and selling securities (open market operations) reduce the money supply.