Question : Which of the following tools are used by the central bank to control the flow of money in the domestic economy?
Option 1: Fiscal tools
Option 2: Quantitative monetary tools
Option 3: Qualitative monetary tools
Option 4: Both (b) and (c)
Correct Answer: Both (b) and (c)
Solution : The correct answer is d) Both (b) and (c)
The central bank uses both quantitative and qualitative monetary tools to control the flow of money in the domestic economy.
Quantitative monetary tools refer to measures that directly impact the quantity of money in circulation. These tools include open market operations (buying and selling of government securities), reserve requirements (setting the minimum amount of reserves banks must hold), and the discount rate (the interest rate at which banks can borrow from the central bank).
Qualitative monetary tools, on the other hand, refer to measures that affect the quality and composition of credit in the economy. These tools include credit rationing (limiting the availability of credit for specific sectors or purposes), moral suasion (guidance and persuasion to influence bank behavior), and selective credit controls (imposing restrictions on specific types of loans or borrowers).
