Question 8
Financial InstitutionsIf the Central Bank of Nigeria reduces the bank rate, this will cause
- A.money supply to increase
- B.commercial banks to reduce lending
- C.commercial banks to merge
- D.money supply to reduce
Show the answer and explanation
Answer: A (money supply to increase)
Explanation
A lower bank rate makes borrowing from the central bank cheaper, so commercial banks lend more and money supply increases.