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JAMB Economics 2010 Question 31

Question 31

Financial Institutions

By buying treasury bills, the Central Bank of Nigeria intends to

  1. A.increase money supply in the economy
  2. B.reduce the cash reserve ratio for banks
  3. C.reduce money supply in the economy
  4. D.increase the capital base of commercial banks.
Show the answer and explanation

Answer: A (increase money supply in the economy)

Explanation

When the central bank buys securities in open market operations, it pays out money, so money supply rises.