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JAMB Economics 2001 Question 38

Question 38

Financial Institutions

An increase in the discount rate is an indication of a central bank's intention to pursue

  1. A.an expansionary monetary policy
  2. B.a disciplined monetary policy
  3. C.a dynamic monetary policy
  4. D.a contractionary monetary policy
Show the answer and explanation

Answer: D (a contractionary monetary policy)

Explanation

Raising the discount (bank) rate makes borrowing dearer, reducing the money supply: a contractionary (tight) monetary policy.